May 23 was historic day for the Indian markets as the Sensex climbed Mount 40K, while the Nifty50 also surpassed the much talked about 12,000 mark in a single trading session as trends indicated that the BJP is all set to form the government for the next 5 years.
After recording muted single-digit gains in 2018, benchmark indices rallied to fresh record highs in 2019 ahead of the elections. The S&P BSE Sensex and Nifty50 have already rallied over 10 percent so far in 2019 and the upside looks fairly limited from here, suggest experts.
The most aggressive estimate comes from global investment bank Morgan Stanley, which expects the S&P BSE Sensex to touch 45,000 by next June and the Nifty50 could well scale 13,500 in the same period, which represents another 10 percent upside from current levels.
The recent estimates suggests that the maximum upside remains fairly limited for at least benchmark indices, and investors should be more focused on individual themes which are likely to create wealth in the next five years, suggest experts.
If the Modi government comes back to power, the focus of the market will shift to the growth cycle, with the RBI expected to be more accommodative, said brokerage firm, Morgan Stanley.
"We set our June 20 target for BSE Sensex at 45,000 and Nifty at 13,500”. We are adding Asian Paints and Interglobe Aviation to the focus list at the expense of Adani Ports and Eicher Motors," said Morgan Stanley.
The brokerage said that the risk for equities is mostly global, with oil, US Fed and trade tensions, "but our call assumes resolution to the ongoing strain in the financial sector via liquidity infusion and continuing fiscal discipline."
Investors should eye stocks in sectors which are likely to hog the limelight in the next 3-5 years based on expected policy changes because that’s where the real wealth will be made, experts suggest.
The NDA government is likely to come back to power with a majority mandate will certainly boost market sentiments though economic challenges still remain and that will cap much of the upside, for now, fear experts.
“There are serious challenges faced by the Indian economy like slowing consumption, a squeeze on credit, the fiscal deficit and global uncertainties that need to be addressed to support a sustained rally in the equity market,” Gaurav Dua, Senior VP, Head – Strategy and Investments, Sharekhan by BNP Paribas, told Moneycontrol.
“We expect another 5-8 percent kind of gains in the Nifty/Sensex, and much better upside in mid-cap/small-cap over the next few months,” he said. Dua further highlights three priorities of the new government that would enable the investors to ride the rally and position the investment portfolios accordingly.
The first priority of the government is rural development to ease farm stress through the development of rural infrastructure (roads, housing etc) and boost farm income.
Sectors which are likely to hog the limelight include consumer companies, farm equipment, rural financing companies, building material including cement and agri-inputs companies which will boost rural demand.
Dua handpicks stocks from the rural theme which include names like Kajaria ceramics, M&M, Chola Fin, Dabur, Relaxo, Polycab, KEI Industries, PI Industries, UPL.
The second priority of the government would be driving capital investment in infrastructure development especially water linkage, roads among others, as can be inferred from the figure of Rs 10,00,000 crore stated in the BJP manifesto and highlighted by Mr Modi in his speeches (Water is next big priority after toilets; to be done through river linking as the key project.)
Under this theme, Dua suggests L&T, Ashoka Buildcon, Ahluwalia Contracts, KNR Construction, Ramco Cement, Ultratech, Shree Cement, pipe makers like Jindal Saw, Welspun Corp etc.
And, the third priority of the government is national security, which would be benefial for companies like Gujarat Gas, IGL, BEL, NTPC etc.
We have collated a list of stock and sectoral ideas from various experts for the next 3-5 years of Modi 2.0:
Karthikraj Lakshmanan, Senior Fund Manager-Equities, BNP Paribas MF
We are optimistic on financials and select pockets of consumption. There is a structural trend in the banking sector over the last two decades, as private banks have been gradually gaining market share from PSU banks. From a long term perspective of about three to five years, the banking space exhibits signs of growth potential.
“Lower credit costs for corporate banks and higher retail growth for all, as long as the retail credit cycle continues to be on a good wicket as it has been in last many years,” he said.
Lakshmanan is also positive about the insurance sector, which has been delivering decent growth and has an opportunity for additional market penetration in the term insurance business. Reasonable valuations of companies from the sector makes it attractive for investment.
Romesh Tiwari, Head of Research, CapitalAim:
On the upside, any close above 11,800 may take the Nifty above 12,000. Infrastructure and the banking sector may give good returns on the upside. We are positive on DLF, Yes Bank, IndusInd Bank.
Dharmesh Kant, Head - Retail Research at IndiaNivesh Securities
The advice would be to invest in equities as part of their asset allocation. The long term economic backdrop for the Indian economy is good, real GDP should grow at an average of 7-8 percent in the long term.
Indian households are also underinvested in equities and adding equities to their portfolio should help them build wealth.
By Diwali (2019) headline indices are likely to make new highs. Nifty is likely to extend upside to 12,600 levels on the downside if global headwinds play out, it may re-test 11,200. PSU Banks, Infra, the NBFC and FMCG space will be benefited most.
In terms of stocks we like FIEM, Hero Motocorp, Hikal, NBCC, and RVNL.
Vivek Ranjan Misra- Head of Fundamental Research at Karvy Stock Broking.
Based on our assumption that a stable, reform-oriented government shall assume power after the elections, interest rate sensitive stocks should get a boost, these are banks, capital goods, and the auto sector. In addition, real estate, cement and metals should also do well.
