Top five picks are ICICI Bank, Aarti Industries, Kalpataru Power, Yes Bank, Arvind Fashions, We see scope for 25-30% upside over next one year
We see opportunities across the market breadth though the midcap space could give better returns than largecaps over the next 12-18 months, Gaurav Dua, Head of Research, Sharekhan by BNP Paribas, said in an interview with Moneycontrol’s Kshitij Anand.
Edited excerpt:
Q) Should Indian investors be concerned about global slowdown that has clouded equity market outlook?
A) Interestingly, the global slowdown related concerns have cropped up in each of the last five years and in all cases, the correction turned out to be an opportunity to buy.
Rather than worrying about it too much, investors would be better off if they focus on individual investment opportunities and readjusting their portfolio.
To factor in the impact of a possible slowdown in the global economy, it would be prudent to reduce exposure to exports-driven sectors and global commodities (oil & gas, metals).
On the other hand, it is advisable to increase exposure to domestic growth stories.
Overall, we are constructive on equities given the expected buoyancy in corporate earnings over the next two years and reasonable valuations post the consolidation phase of the past 12-15 months.
Q) What are your expectations for FY20?
A) We see scope for 14-16 percent returns in benchmark indices over the next 12 months which is largely in line with the expected growth in corporate earnings in FY20.
Q) What is more promising: large, mid or small caps?
A) We see opportunities across the market breadth though the midcap space could give better returns than largecaps over the next 12-18 months.
Currently, our preferred investment themes are: 1) Corporate lending banks due to peaking out of NPA issues that would result in sharp re-rating of stocks like ICICI Bank, Axis Bank, SBI, PNB, Federal Bank over the next 12-24 months.
2) Agrichem/Speciality chemicals where the global scenario is turning favourable on the back of new molecules launches and reduced competition as environmental issues is hurting Chinese manufacturers.
We prefer UPL, PI Industries, Aarti Industries, Atul Limited in the agrichem/speciality chemical space.
Q) Your view on the currency for the next 6-12 months?
A) We expect near term volatility given the global scenario and concerns related to fiscal slippages given the race to announce freebies/dole outs to poor in the run-up to elections.
On a normalised basis, we see rupee to be in the range of Rs69-71 against USD for the larger part of the next year.
Q) Which sectors are likely to remain in limelight in FY20 and why?
A) Apart from the two investment themes of corporate banks and agrichem/speciality chemicals, capital goods and engineering stocks may come in focus during the year.
Consumption is showing distinct signs of slowdown whereas there are green shoots on the capital investment side along with reasonable valuations is quite favourable.
Q) What factors are likely to impact the market in FY20?
A) Elections outcome and the policy priorities of the new government along with monsoon forecast are two key near term events that can influence the markets.
Domestically, the buoyancy in corporate earnings and the recovery of consumer demand driven by policy support are other major influencing factors.
Globally, the trade war, policy response to a slowdown in China, Europe, and the US by respective governments and central banks would also be keenly watched by the market.
Q) How is FY20 likely to pan out for investors and markets at large?
A) Unlike 2018 or FY19, we expect the equity markets to give positive returns to the investors in 2019 and FY20.
The macro environment is supportive for equities in terms of weak inflationary trends (weakness in prices of global commodities), revival in growth of corporate earnings and reasonable valuations.
Q) Five value stocks which investors should look at in FY20?
A) ICICI Bank, Aarti Industries, Kalpataru Power, Yes Bank, Arvind Fashions.
We see scope for 25-30 percent upside in the basket of these five stocks over the next one year.
Disclaimer: Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
