The market continues to gradually move northward, amid consolidation, after touching its 2018 lows in March (Nifty fell below the 10,000 mark). It took into its strides all negatives: US-China trade tensions, crude oil volatility, rupee depreciation versus the dollar and rising inflationary concerns.
The key factors that are driving the market higher and propelling it towards its earlier record high of 11,171 (touched on January 29) on the Nifty are hopes of a recovery in earnings and economic growth, and continuous support from domestic institutional investors (despite outflows from foreign institutional investors).
Domestic investors are still hoping for a continuity in economy policies, though there is political risk emerging, which may cap the upside.
Given the challenges on the macro front and increasing political headwinds faced by the Bharatiya Janata Party heading into the 2019 general elections, Prabhudas Lilladher expects traders to remain cautious. In this uncertainty, the research house does not expect valuations to expand. On the contrary, it sees valuations remaining closer to the 10 year average of 17.1 times.
related news Deploy low-cost bull call spread on the Nifty in expiry week Deploy Bull Call Spread ahead of expiry; 3 stocks which could give 15-29% return Nifty to face resistance around 10,860 levels; Buy M&M Financial for the short termAlthough 2018 would be a year of consolidation after the extraordinary gains in 2017, market veteran Rakesh Jhunjhunwala said, "I don't think political uncertainty is going to let this market go down beyond a point."
Benchmark indices rallied around 2.5 percent but the midcap index lost more than 11 percent in 2018 so far.
Jhunjhunwala believes that bull markets cannot end at these levels of profit-to-gross domestic product (GDP). "The capital investment cycle has just begun. In 2002-03, investment-to-GDP was about 27 percent and savings were around 28-29 percent. By 2008, both were about 37-38 percent. So, you have a level where percentage of profits-to-GDP is at one of the lowest levels. The effects of the Insolvency and Bankruptcy Code, the Goods and Services Tax, the aim to construct toilets, the Jan Dhan Scheme, opening of bank accounts, digitalisation of the economy is all a process. I think with each passing day, the benefits of these things to the Indian economy will go up."
Prabhudas Lilladher too sees India ending the year with a strong GDP growth of 7.4 percent. "We expect to see a better FY19 performance with the growth estimated around 7.4 percent.��
In FY18, the earnings per share for the Nifty was Rs 450.9, much lower than initial estimates. This reduction was mainly due to increased losses in state-run banks, with a contraction in earnings in the banking, financial service and insurance space. For FY19, the brokerage expects a 17.3 percent growth in earnings, with the BFSI space expected to contribute significantly.
Jhunjhunwala said flow of local inflows into Indian markets is just beginning and is not going to stop. "The flow of the local money first of all will be far better than foreign outflow. At the moment, India��s macros are much better than other emerging markets."
Here is the list of 25 stocks by Prabhudas Lilladher, which could offer up to 54 percent return:
