Nifty can go beyond 18100 in a year; Auto, Capital Goods, FMCG stocks among top bets for next 6 months

Stock markets are volatile as of now, and going forward, will depend on fundamental factors like inflation, interest rates globally, economic growth, currency movements and corporate performance in India and technical factors like FPI fund flows and their risk appetite. Investing in emerging countries like India. For the next 12 months, Nifty may top around 18,100 in best case scenario, while on downside it may drop to 13,600. Triggers may emerge for Nifty to move 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 the top bets from the outlook for the 1-2 quarter, Jasani said. Here is the detailed interview.

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

Investors can revisit their asset allocation and review their portfolio. In bullish times, investors make mistakes through over-allocation in equities and/or in stock selection going down the quality curve. They need to fix it. For investors with low exposure to equities, a staggered buy (shortlisted according to risk appetite and return expectations and after putting in some time and effort) in select stocks is recommended as a lot of stocks have been out of stock after the recent correction. Looks at an attractive level. (although some more may fall).

Do you think the Nifty 50 index has made a low at the current level? Are there any signs on the chart? What could be the best and worst scenario for Nifty for the next 12 months?

Technically Nifty may have made a near term bottom at 15183. Now whether this is a medium term bottom or not, it will be known only when the high of 16793 is crossed. For the next 12 months, Nifty may top around 18100 in best case scenario, while on downside it may go towards 13600. Triggers may continue to emerge for Nifty to move in a specific direction. Historically, Indian indices have fallen anywhere between 10-13% from long term tops or 18-39% from tops, if we exclude sharp declines after the 2,000 and 2,008 top. So even though Nifty may have fallen ~15% from the high of 18604, chances are we haven’t seen a permanent bottom in the markets yet. This may be due to the fact that interest rates are not as extreme globally. Against this background debt can become globally attractive and money can flow from equity to debt.

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

It is difficult to predict individual Nifty movements, but a lot will depend on inflation and interest rates globally, economic growth and currency movements and technical factors like corporate performance in India and FPI fundflows and their risk appetite in investments in emerging countries. Like India. As per the current setup, a small up move could be followed by another downmove (revisiting earlier lows or going just below it) and then another up move.

What are the major triggers and drivers for the stock markets to move forward? What is your near-term outlook on internet-based stocks like Zomato and Paytm?

Global inflation, which will affect the policies of central banks on interest rates, will be a major concern going forward. Apart from this, geopolitical issues in Europe and China region will have to be closely monitored. If a recession starts to occur in the developed economies, then the emerging economies will have to bear the brunt. We are cautious about new age internet based stocks and need to be confident about their ability to start making profits within the next 2-3 years.

Sector-wise, the realty and IT sectors have declined by more than 20% in 2022 so far. What is the impact on these sectors and will the weakness persist? Any top stocks worth buying?

IT services stocks can be assured of sequential revenue growth amid unfavorable macroeconomic environment. However, given the huge uncertainty in the advanced economies, the gradual fresh deal inflows may disappoint for the time being. A resurgence of the USD against global currencies will impact the US revenue growth rate. Due to higher retention cost, salary revision, visa cost and rising travel expenses, the EBIT margin of most IT services companies may decline in the near term. The headwind is expected to be partially offset by the depreciation of the rupee. Comments on customer IT spending and demand environment need to be monitored amid a series of recent macro events.

While the medium term outlook of IT firms remains good, in the near term, the sector may underperform as a result of demand issues, cost pressures and reluctance of FPIs. Among IT stocks, we prefer Infosys, TCS, Tech Mahindra among others for staggered buys.

Real estate stocks are currently facing adverse conditions like rising interest rates, resulting in higher EMI payments by mortgage borrowers and higher cost of construction. Although this may be a temporary phase as prices remain stable, overall uptake is still at a decent level and consolidation is taking place among the big players reducing competitive intensity and improving buyer experience. At real estate companies, we like DLF and Phoenix Mills for stunning purchases.

What are the sectors and stocks that you would look into, which have fallen due to the FII route, or are not buying DIIs and are now looking attractive despite the hike in interest rates?

FPIs have been big vendors in financial and IT services. IT services seem to have reached a lucrative point to start staggering purchases. Investments in financials may have to wait for some more time as they may be hit by higher interest rates, lower credit offtake in case of slowdown impact, potential asset quality issues and increased competition from NBFCs and new banks.

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

Commodity stocks have already fallen from their recent highs. Just because commodity prices are falling, there is no need to have a very negative view of such stocks as most of these negatives may already be in price. However, if the fears of a slowdown in the US economy turn out to be true, then there is room for further downside in these stocks. Consumers of commodities may benefit from the fall in prices. These include consumer staples, chemicals, durables, capital goods, logistics, etc.

The valuation of equities may decline as a result of rising rates due to the low present value of future cash flows. Rising rates could also add to the pain for industries dependent on leverage and create problems for firms that are already indebted and finding it difficult to borrow. Investors would do well to review their asset allocation and portfolio to bring them back to where they were originally planned and commensurate with their risk appetite.

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

From a 1-2 quarter perspective, we prefer Auto, Capital Goods, FMCG, Telecom sectors. On the other hand, until the dust settles on the interest rate/inflation situation around the world, we will stay away from cyclical zones.

(The stock recommendations in this story are by related research analysts. FinancialExpress.com takes no responsibility for their investment advice. Capital market investments are subject to rules and regulations. Please consult your investment advisor before investing.)

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