The markets are closely watching how banks, FMCG and select upstream oil and gas firms perform on the earnings front going ahead, Mayuresh Joshi said.
Corporate earnings offer a bigger trigger for the stock markets in 2019, than even the upcoming general elections, says a veteran fund manager. The markets are closely watching how banks, FMCG and select upstream oil and gas firms perform on the earnings front going ahead, Mayuresh Joshi of Angel Broking adds.
Sharing his long-term outlook for the stock markets, the veteran fund manager tells FE Online while Nifty may move near to 12,000, Sensex is likely to inch towards 39,000-mark.On rupee, Mayuresh Joshi tells Ashish Pandey of FE Online that the domestic currency may hover in the 67-72 per US dollar mark with a slight bias towards strengthening over the year.
Here are the edited excerpts of the interview:
What’s your short-term and long-term target for Sensex and Nifty from now? How would upcoming general elections, crude oil, fiscal deficit, and others impact the stock markets going ahead?
The year 2019 is likely to be a tumultuous year for the indices as a variety of contrarian forces are likely to act on the markets. The big event is likely to be the general elections in mid-2019. At the same time, global events like the trend in crude prices, Fed rate stance, global liquidity will also have a deep impact on the market direction. But the big triggers will be outside the realm of macros and politics.
While inflation and fiscal deficit will still play a part, the real focus will be on the quarterly results at a micro level. The markets are betting on index heavyweights like the Banks, select upstream Oil & Gas and FMCG companies to put up stellar growth performance in the coming quarters.
Corporate earnings have largely disappointed over the past few years and the general consensus is for a 12-14% earnings growth over the next couple of years. If the Nifty and Sensex are able to sustain net profit growth in excess of this base case scenario that the markets are presuming, then the current levels of the index would value the earnings on 18 times forward basis.
Assuming that there are no negative surprises in the general elections and the reforms momentum is intact, the Nifty should look to inch closer to the 12,000 mark and the Sensex should look at getting closer to the 39,000 mark, over the longer term.
What’s your advice for retail investors? Which are the stocks that may gain and lose in the near term?
For retail investors this is going to be a difficult market to trade in the short to medium term. VIX is expected to be high and higher volatility will mean that trading positions are always going to be at risk. Unless retail investors are able to closely analyse and monitor their portfolio, they would be better off sticking to quality equity funds and ideally adopt a systematic approach to investing.
Normally, election years have been positive for markets and have set the foundation for a multi-year rally. For retail investors looking to play stocks directly, sectors like Banks, FMCG, Select NBFCs, Specialty chemical names and selective cement plays could offer value. If the capital cycle turns around decisively then the capital goods space could also be a good investment idea.
Where do you see rupee in the near-term?
The rupee value would be a function of the dollar index on the one hand and the domestic macros on the other. On the dollar index front, the CME Fed Watch Tool is indicating a high probability that the status quo on rates will be maintained during the year. That means the dollar index (DXY) is unlikely to strengthen substantially, and that is good news for the rupee.
On the domestic front, fiscal deficit could be the only worry considering that the government has committed huge outlays to the farm and rural sector. However, if the trade slowdown happens, as evinced by China’s trade numbers, then the trade deficit should get curtailed to more reasonable levels. Overall, the rupee should hover in the 67-72/$ mark with a slight bias towards strengthening over the year.
How do you see the latest earnings season panning out? Which sectors may outperform, as per you?
Lower oil prices should come as a relief for input costs and that should add to the OPMs of most manufacturing sectors. The key sectors to watch out for will be FMCG, banking and auto. FMCG is expected to benefit from demand pull and also from lower input costs. Private Banks may outperform other sectors while the key thing to watch in PSBs will be whether the NPA cycle is bottoming out.
Auto may have concerns after the weak monthly numbers in December. Overall, we see private banks, FMCG and IT companies showing good results. The pressure should continue on metals, telecom, and power and auto stocks. Investors need to tweak their portfolio mix accordingly.
Equity mutual fund inflows have tapered in December. Is the trend likely to continue?
While the overall selling by mutual funds during the month of December was Rs.126,000 crore, the biggest chunk of selling was led by debt funds and liquid funds considering year-end liquidity considerations. In fact, SIP inflows into equity funds and ELSS was at a record Rs.8022 crore in December, indicating that the retail flows into equity funds is still robust. While debt flows could still remain cyclical, we expect the SIP flows into equity funds to sustain at current levels