‘Metal, auto, IT companies to take a hit if Brexit happens’

By: | Updated: June 22, 2016 12:43 PM

Nifty and Sensex will hit new highs before March 2017 and we are expecting that Nifty will hit the levels of 9,500 and Sensex will hit levels of 31,000 before March 2017.

stock markets brexit worriesNifty and Sensex could hit new highs before March 2017

Nirdosh Gaur, MoneypalmDomestic equity markets along with Indian companies will be impacted from Brexit. Capital inflows to India will also get hurt in near future because investors will look for safer assets like gold and US Bonds, Nirdosh Gaur, managing director and chief executive officer, Moneypalm tells Rahul Oberoi. The discount brokerage firm CEO also said that Nifty and Sensex could hit new highs before March 2017. Excerpts from the interview:

Q. What is your take on Brexit and how it can impact Indian equity markets?
A. Practically speaking it is almost impossible to predict, what will happen if Britain remains or exits European Union (EU). As per latest poll surveys, Britain will remain a part of EU. That’s why GBP and Euro currency were appreciated substantially on Monday.

As per our expectations, vote to remain in EU will have positive impact on euro and pound currencies in the range of 2-4 per cent and vote to exit from EU will have a negative impact on these currencies in the range of 6-10 per cent.

India along with global markets will be impacted from Brexit as Indian companies are major investors in Britain and their current and future plans of investments can get hurt. Capital inflows to India will also get hurt in near future because investors will look for safer assets like gold and US Bonds.

Q. Which Indian companies can suffer if Britain exits from European Union? How?
A. Companies which have major exposure to EU will get impacted from Brexit and this impact will be majorly due to currency fluctuations. Metal companies like Tata Steel and Hindalco, auto majors such as Tata Motors, Motherson Sumi, IT companies like TCS, Tech Mahindra, HCL Tech and Pharma companies like Lupin, Dr Reddy’s Laboratories will get impacted from Brexit.

Also read: 7th pay commission implementation, monsoon, GST to boost business of these two companies

Q. There are expectations that GST will get its passage this monsoon session, in this scenario which companies and sectors will benefit from the move?
A. Expectations of GST getting passed are high in upcoming monsoon session of Parliament. Implementation of GST will be beneficial for sectors like retail, auto, FMCG, auto ancillaries, building construction material and logistics. Companies like ITC, HUL, Britannia, Maruti Suzuki, Hero Motocorp, Pantaloon Fashion, Bharti Retail, Gati, Gateway Distriparks, and Transport Corporation of India etc. will get benefited from implementation of GST.

Q. How do you see valuations of Indian equity markets after the recent bull-run in the Indian equity markets?
A. We are having a view that Indian equity markets are currently optimally priced as Sensex is trading at price-to-earnings (PE) of 22 but we are expecting that market can run up for next two months on expectation of passage of GST and good monsoon expectations and PE of Sensex can stretched up to 24 in coming 2 months.

Q. Where do you see Sensex and Nifty by the end of March 2017 and why?
A. We are expecting that Nifty and Sensex will hit new highs before March 2017 and we are expecting that Nifty will hit the levels of 9,500 and Sensex will hit levels of 31,000 before March 2017. We have four reasons for our bullishness. 1. Reversal of cycle of metal and crude prices 2. Better second half results of companies 3. Good monsoon will revive rural demand 4. Lower interest rates will start showing impact on results of heavy debt laden companies.

We are also expecting that FDI to the country will increase in coming months due to increase in FDI limits in defence, aviation and pharma sectors. Increased retail participation through mutual funds is also a good sign for us and giving the markets a neutral balance against FII’s.

Q. On which sectors you are bullish right now and how do you see them going forward?
A. We are bullish on sectors like NBFC’s, metals, oil marketing companies, retail and PSU banks. We are expecting 20-40 per cent return in one year from good companies of these sectors.

Q. Can you suggest few stocks to our readers for the next 24 months?
A. We suggest investing in NBFC’s like DHFL, Indiabulls Housing Finance, SREI Infra, and Manappuram Finance due to their future growth prospectus. Metals companies like Vedanta, Hindalco, and JSW Steel will get benefitted from reversal from price cycle of metals. Oil marketing companies like HPCL, BPCL and IOC are good investments at current Valuations. PSU banks like OBC, Allahabad Bank, Andhra bank, and Union Bank, Indian Bank are currently trading at 30-40 per cent of their book value.

Q. What are the key risks for the Indian equity markets?
A. There are six key risks for Indian equity markets are – 1. Any major depreciation of Indian currency, 2. Any steep upside in crude prices, C. Monsoon not turned out good as per predictions, D. Increase in fiscal deficit, E. Above expectation interest rate increase by US Federal Reserve, F. Any turmoil in global financial markets.

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