1. There is now a clear focus on CPI inflation as a policy objective, particularly as the Governor emphasized the importance of anchoring retail inflation.
2. So far as the medium-to-long term market outlook is concerned, initiatives to improve domestic economic growth rate and reduce interest rates will be important triggers.
3. Fiscal initiatives from the government will be important to achieve these objectives and from that perspective, political developments will be closely watched.
At current valuations of 14x - 14.5x consensus FY15 earnings, valuations are not undemanding. Most of the defensive stocks are richly valued, whereas stocks with low valuations do not have adequate growth visibility. Thus, we continue to recommend a selective and balanced approach towards sectors.
1. We do like select stocks in sectors like IT, Media and private sector banks.
2. Within beaten-down 'domestically-oriented' and 'investment-led' sectors, one can look at stocks having strong balance sheets and ethical managements.
Key risks to our recommendation would come from decline in foreign inflows, sharp currency depreciation, spike in oil prices and political uncertainty.
By Dipen Shah, Head- Private Client Group Research, Kotak Securities
NOTE: The views expressed are those of the author