For the coming year, we believe the markets will have certain headwinds rather than sailing easily throughout the year. Firstly, with our analysis, there is a cyclicality in volatility but this tend to erode around major economic or macro-economic event and a much bigger cycle takes the front seat. In past we have seen volatility heightened usually 2 months prior to election and settles down post election as dust settles. Hence any short term or medium term investor should avoid investing with short term or medium term perspective, as; volatility may hurt the overall returns. The important point here is that post election as it settles down the long term trend remains intact and the overall bullish nature of the market unfolds itself for long term investors.
Keeping above analysis in mind, we believe the market is likely to be in consolidation going forward with some correction that can bring down the valuations to a cheaper level. Risk aversion will be the flavor.
In the backdrop we need to understand there are certain factors that are important as a cue to discount the overall movement. The negative factor for Indian market is the negative global markets which are off their peaks and trading at 1 year lows. The expanded volatility by 80 per cent from last couple of weeks has already put global sentiments in a negative perception.
The favorable factor with this year end and next coming is the appreciation in the INR and Crude oil prices. Rupee has appreciated almost 7% in last few weeks while crude has dropped almost 44% from its recent peaks which is a most important factor. This will have significant impact on CAD.
Keeping above perspective in background, Equation seems to be positive for a long term i.e. while in short term or medium term perspective like 3- 5 month we expect a rise in volatility that can dampen any directional move.
For a short-term perspective we expect market to be in range with upside capped at 12,000 while on downside it has support placed at 9,450. Hence with our analysis many things are looking to work out in favor of Indian economy in medium to long-term view. Any decline from current level which is more than 10 per cent should be utilised by investors to add quality stocks with growth potential and once the volatility settles down one should keep investment horizon for longer term. As In long-term risk adjusted returns tend to be better. While we do suggest to not to be aggressive in initial quarter of 2019 or second quarter as well. One should be having systematic approach with overall strategy to be scattered.
Investors for 2019 should understand that any dip is useful when it is more than 10 per cent in a secular bullish market. This helps to bring cost lower and pyramid the portfolio for better returns.
As far as timing is concerned, we believe Post June we expect smoothness due to easing of volatility and pick up in investment cycle. It all comes down to mandate of people in Lok Sabha election 2019 as well.
The road ahead for Nifty/Sensex in 2019 seems to be accommodating volatility which has been cyclically down for the last couple of years. While Volatility has been the curse for 2018 as the year started with its expansion and since then we have seen Nifty volatility expanding in a gradual manner, up 68 per cent in the last few weeks. With Events, ahead of us such as LS2019 and global markets continue to break important supports we expect the headwinds will be there. Though on the other hand, we have crude which is around $42, below $50 mark, which is a boon for Indian economy hence we will see bulls try to make their way out of it. For the Nifty the range seems to be 12,100 on the upside to 9,400 on the downside. The Sensex, on the other hand, may oscillate between 39,800 to 32,300.
10 stock recommendations
SBI: The stock has shown some strength in last few quarters while on a long term chart it is in a broader consolidation range of 330 – 260. It continues to be a leader in PSU space and we expect outperformance from this bank in coming quarters with its growth potential as improved BS in last two quarters. We expect it to be a good pick with upside potential of 20 per cent i.e. 354
Yes Bank: Stock has seen its worst correction in last almost 10 years since 2008 financial crisis and is hovering at very important support which is placed at around 150 levels. We expect stocks it to be a bottom in medium term and stock is showing signs of bottoming out in its pattern. We expect an upside from present levels in stock of around 25 per cent i.e. 225
Vedanta: Stock after a due correction in 2018 has turned flat in a consolidation range. The important support for the stock is around 170 – 166 levels and with recent consolidation an upside momentum for medium term can be seen with target of 240 – 250.
M&M financial services: Stock is in a bullish momentum with its trend primarily intact. A recent dip was seen but it resumed the uptrend and is trading near its all time highs which is around 500. We expect the trend to continue and stock make new highs in 2019 with upside target of 560 – 570.
Wipro: The stock is from IT space and is performing well since 2017 making higher tops and higher bottoms after ending its two years of correction that started in 2015. Stock is trading near its 2015 highs of 340 levels and given its strength we expect it to continue to be in uptrend with higher targets of 390.
Motherson Sumi: It has been one of the best value creator in last 10 years with appreciation of more than 3,800 per cent. A recent correction in stocks from all time highs presents an opportunity for a value buy and at a lower price. We expect it to resume uptrend in coming year with strong support st a140 – 130 levels. An upside towards 210 – 240 is expected in 2019.
Federal Bank – Stock has ended its corrective pattern at lower levels of 70 – 75 levels in this quarter and from present we believe the primary trend to continue that is bullish with higher tops and bottoms. We expect federal bank to perform better from Midcap space and reach higher targets of 121
Dr Reddy: With expansion in volatility we expect Pharmaceutical sector to see some outperformance. Dr Reddy from lower top and lower bottom has turned sideways and closed above its resistance line. The stock is also seeing a breakout from double bottom with targets of 3,200 in coming months.
India Cement: Stock is available at very important support couple with confluence of supports on higher timeframe. It has very important supports placed at lower levels of 75 – 77 and we expect India cement to see some short term up move from current levels of 93 in coming months to higher levels of 125.
Exide Inds: Stock is one of leaders in Battery space with its outperformance in trend as well since 2015. An uptrend with positive momentum and a golden cross on charts suggest an uptrend to be intact while a recent fall will provide an opportunity to enter into trend for higher target of 325 from present levels of 261.
(The author is CEO at Epic Research)
2019: Better starting point in terms of valuation, currency
Current macro-economic conditions and valuations are quite supportive and drive our expectations of decent (10-15%) equity returns in 2019. The market is reasonably valued although the reasonable valuations reflect strong earnings revival over FY2019-21.
1HFY19 net profits of the Nifty-50 Index grew 12%, which imparts some confidence aboutFY2019 profits; we expect 14% growth. Also, the INR seems to be fairly valued; we see mild depreciation in 2019 compared to the sharp correction that it saw in 2018.
1HCY19: Plentiful events to shake the faith
Global and Indian equity markets will have to contend with several events in 1HCY19. (1) The US Fed’s rate actions linked to the strength of the US economy will be a key variable; the US
economy continues to display strong momentum and stronger-than-expected economic data could surprise the market negatively in terms of the extent of rate increases by the Fed. (2) The progress on China-US trade issues will be another variable with the US holding the threat of further increases in tariffs on Chinese imports from March 1, 2019.
(3) The level of oil prices linked to further US action against Iran’s oil exports (current exemption to eight oil importing countries from Iran ends on May 4, 2019) will matter particularly for India’s macro. (4) India will hold national elections in April-May 2019 and the outcome is quite uncertain post the strong performance of the main opposition party in recent state elections;these states contributed handsomely to BJP’s victory in 2014.
2HCY19: Earnings will matter once India is past the election hump.
We expect earnings growth to be the biggest driver of the Indian market in 2019/FY2020. Our 14% and 27% growth in the net profits of the Nifty-50 Index for FY2019 and FY2020 may look high but this largely reflects earnings revival in ‘corporate’ banks from a low base. On an ex-banks basis, we expect FY2019 and FY2020net profits of the Nifty-50 Index to grow 9% and 14%. We would refer readers to our December 20, 2018 report for more details.