Nifty may hit 18100 in a year; Auto, Capital Goods, FMCG stocks among top bets for next 6 months | INTERVIEW

For the next 12 months, Nifty may make a top around 18,100 in the best case scenario, while on the downside it could fall towards 13,600. Triggers may keep emerging for Nifty to go in a particular direction.

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Share markets are volatile as of now, and going forward, a lot will depend on the fundamental factors such as inflation, interest rates globally, economic growth, currency moves and corporate performance in India, and technical factors like FPI fund flows

Share markets are volatile as of now, and going forward, a lot will depend on the fundamental factors such as inflation, interest rates globally, economic growth, currency moves and corporate performance in India, and technical factors like FPI fund flows and their risk appetite in investing in emerging countries like India. For the next 12 months, Nifty may make a top around 18,100 in the best case scenario, while on the downside it could fall towards 13,600. Triggers may keep emerging for Nifty to go in a particular direction, said Deepak Jasani, Head of Retail Research, HDFC Securities in an interview with Harshita Tyagi from FinancialExpress.com. Auto, Capital Goods, FMCG, Telecom stocks are among top bets from a 1-2 quarter perspective, Jasani added. Here is the detailed interview.

The Indian market touched a fresh 52-week low recently and then there was a slight bounce-back. What should investors do? Is it time to turn cautious or buy the fear?

Investors can revisit their asset allocation and also do their portfolio review. In bullish times, investors tend to make errors by way of over allocation in equities and/or going down the quality curve in stock selection. They need to correct this. For investors who are underinvested in equities, a staggered buying in select stocks (shortlisted as per the risk appetite and return expectations and after putting in some time and effort) is recommended as after the recent correction a lot of stocks seem to be at attractive levels (though some may fall more).

Do you think the Nifty 50 index has made a bottom at current levels? Are there any signs on the chart? For next 12 months what could be the best case and the worst case scenario for the Nifty?

Technically Nifty may have made a near term bottom at 15183. Now whether that is a medium term bottom will be known only if and when the highs of 16793 are crossed. For the next 12 months, Nifty may make a top around 18100 in the best case scenario, while on the downside it could go towards 13600. Triggers may keep emerging for Nifty to go in a particular direction. Historically, Indian indices have fallen anywhere between 10-13% from the long term top or 18-39% from the top, if we exclude the sharper dips post 2,000 and 2,008 tops. Hence even though the Nifty has fallen ~15% from the highs of 18604, there is a possibility that we may not have yet seen a sustainable bottom in the markets. This may be due to the fact that interest rates globally have not peaked. In this background debt may become attractive globally and money could flow from equities to debt.

We are halfway through the year 2022 and it has been a volatile journey for investors. What is your outlook for Nifty for the rest of the year? 

While forecasting individual moves of the Nifty is tricky, a lot will depend on the fundamental factors of inflation and interest rates globally, economic growth and currency moves and corporate performance in India and technical factors like FPI fundflows and their risk appetite in investing in emerging countries like India. Going by the current setup, a small upmove may be followed by another downmove (revisiting the earlier lows or going just under it) and then one more move up.  

What are the key triggers and drivers for stock markets going ahead? What is your near term outlook on internet-based stocks such as Zomato and Paytm?

Inflation at global levels that will influence the policies of central banks on interest rates will be the key concern area going forward. Apart from this the geo political issues in Europe and China region have to be closely monitored. If recessionary conditions start cropping up in the developed economies, then emerging economies will suffer a fallout from this. We are cautious on new age internet based stocks and need to get convinced about their ability to start making profits within the next 2-3 years.

Sectorally, realty and IT sectors fell by more than 20% so far in 2022. What is weighing on these sectors and will the weakness continue? Any top stocks which are worth buying?

IT services stocks can be assured of sequential revenue growth amid an adverse macroeconomic environment. However the sequential fresh deal flows may disappoint for some time given the macro uncertainty in the developed economies. Resurgence of USD against global currencies will dent USD revenue growth rate. EBIT margin of most IT service companies could decline in the near term, owing to higher retention costs, wage revision, visa costs, and rising travel expenses. Rupee depreciation is expected to offset headwinds partially. Commentary on clients’ IT spending and demand environment amid the recent series of macro events needs to be monitored. 

Though the medium term outlook of IT firms remains good, in the near term, demand issues, cost pressures and FPI unwinding may result in underperformance by the sector. Among IT stocks, we like Infosys, TCS, Tech Mahindra among others for staggered buying.

Real estate stocks are currently suffering the headwinds like rising interest rates which results in higher EMI payment by mortgage borrowers and higher costs of construction. However this could be a temporary phase as prices have remained stable, overall offtake is still at a decent level and consolidation is happening among larger players reducing competitive intensity and improving buyer experience. Among real estate players, we like DLF and Phoenix Mills for staggered buying.

Which are the sectors and stocks that you would look at which have fallen due to FIIs rout, or DIIs not buying and now are looking attractive irrespective of the rate hike?

FPIs have been large sellers in Financials and IT services. IT services seem to have reached an attractive point to begin staggered buying. Investment in Financials may have to wait some more as they could be impacted by higher interest rates, lower credit offtake in case slowdown effects are seen, potential asset quality issues and heightened competition from NBFCs and new Banks.  

War, inflation, yields, rate hikes, and crude oil prices still remain the relevant concerns for equity markets for the rest of 2022 – how should investors prepare their portfolio?

Commodity stocks have already fallen from their recent highs. Just because commodity prices are falling one need not take a very negative view of such stocks as most of these negatives may already be in the price. However if the fear of recession in the US economy turns out to be true, then these stocks have scope to fall even more. Consumers of commodities can benefit from the fall in their prices. These include Consumer staples, chemicals, durables, capital goods, logistics etc.

Rising rates may result in valuations of equities dipping due to lower present value of future cashflows. Rising rates could also increase the pain for industries dependent on leverage and may create problems for firms that are already indebted and are finding it difficult to service borrowings.   Investors will do well to review their asset allocation and conduct portfolio review to bring them back in line with the originally planned and also in line with their risk appetite.

What are your overweight and underweight sectors, stocks for the next 6 months?

From a 1-2 quarter perspective we like Auto, Capital Goods, FMCG, Telecom sectors. On the other hand we would stay away from cyclical sectors till the dust settles on the interest rate/inflation situation across the globe.

(The stock recommendations in this story are by the respective research analyst. FinancialExpress.com does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)

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