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  1. Forget 20% gain; Sensex, Nifty may even fall 20% in 2018, says Deepak Shenoy, but you can still make money

Forget 20% gain; Sensex, Nifty may even fall 20% in 2018, says Deepak Shenoy, but you can still make money

Those who expect Sensex and Nifty to sustain upward momentum and offer nearly 27%-28% returns in 2018 as well should be up for a shock as higher interest rates may slow down the bull run in the year to come, market expert Deepak Shenoy says.

By: | Published: December 21, 2017 1:52 PM
Sensex, nifty, FPIs, Kotak Institutional Equities, india, Macquarie Capital, Ebitda, capex cycle, PSU banks, Indian stock markets Deepak Shenoy advises investors to limit allocation of equities to their investment portfolio to around 50-60%.. (Image: PTI)

Those who expect Sensex and Nifty to sustain upward momentum and offer nearly 27%-28% returns in 2018 as well should be up for a shock as higher interest rates and liquidity dry up may slow down the bull run in the year to come, market expert Deepak Shenoy says. However, a tax rate cut in the upcoming budget may change the trend. “Higher interest rates will take the steam out of markets. And, the fall can be around 20% if the liquidity dries up. The budget is key – if it becomes too populist, rates will rise further. However, a tax rate cut is expected, and the quantum of that can change the game,” Deepak Shenoy, founder of market research firm Capital Mind, tells FE Online.

Market strategy for 2018

Sharing his investment strategy for 2018, the market expert advises investors to limit allocation of equities to their investment portfolio to around 50-60%. Carrying out proper research of companies before making an investment is what he guides in the times when valuations exist to remain high. “We don’t suggest that you get out of equity completely. A 50% to 60% allocation to equity would be the maximum one should put here. Valuations continue to be too high. Having said that I suggest people research companies well. There are too many overvalued companies, but some pockets of undervaluation still exist,” he says.

Here are the edited excerpts of Deepak Shenoy’s interview with Ashish Pandey of FE Online:

Q.How do you see the markets behaving in 2018? Any target levels for Sensex and Nifty?

No targets. Higher interest rates will take the steam out of markets. And, the fall can be around 20% if the liquidity dries up. The budget is key – if it becomes too populist, rates will rise further. However, a tax rate cut is expected, and the quantum of that can change the game.

Q.Do you think BJP victories in Gujarat and Himachal will play a sentimental effect on the markets?

Himachal is not relevant. Gujarat-wise the victory being smaller will not impact markets as much as the sentiment that the government impact is slightly lower than earlier. However, this was an expected event and an expected result, so don’t expect that to be too much of an impact.

Q.How will the crude oil prices affect the Indian economy in the coming year?

It could be a dampener if it’s a big one. The government will have to roll back excise duty which will hurt the fiscal deficit. Otherwise, the impact might actually be positive.

Q.What is your take on the bank recapitalisation plan launched by the government?

The funding of the plan is still suspect. We don’t know who will pay and why. The debt will still be on government books, so the fiscal does get impacted negatively. However, the banks themselves will find it easier to compete now and might start performing after the NCLT rulings on the sets of companies that are going bust in the first set.

Q.Do you expect rate cuts anytime soon?

No. We worry more about inflation.

Q.What is it that you would recommend in the market?

We don’t suggest that you get out of equity completely. A 50% to 60% allocation to equity would be the maximum one should put here. Valuations continue to be too high. Having said that I suggest people research companies well. There are too many overvalued companies, but some pockets of undervaluation still exist.

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