Banking and financial services, technology, consumption themes, are all good segments to look at for reasonably good returns, over the next couple of years.
Further upside in the immediate term may be quite limited and support for Nifty is at 11,400 and 11,100, said Joseph Thomas, Head Research- Emkay Wealth Management in an interview with Moneycontrol’s Sunil Shankar Matkar.
Edited excerpts:
Q: Do you think the Nifty can surpass 12,000 before election results or it would remain choppy?
A: We have seen significant momentum in the last two months in the run-up to the general elections. This movement is restricted to a large extent in the indices. Some money has moved into ETFs and index funds.
In view of the pace of the movements seen so far, further upside in the immediate term may be quite limited, and there could be some profit booking, which is in the nature of good markets, and more importantly, because of too fast a movement in too short a time.
There may be some amount of volatility and implicit bias towards the downside. Technically, support is at 11,400 and 11,100 on the Nifty.
Q: Recently Maruti Suzuki (MSIL) said recovery will be challenging and will take two more quarters. Are you a buyer in auto and auto ancillary space at this point of time?
A: Emkay Global Equity Research has recommended hold on MSIL. It is relatively better-positioned than its peers in the upcoming BS6 transition, due to its significant exposure to petrol vehicles, and its prospects of better demand and margin. Auto ancillaries including manufacturers tyres, etc. may be considered for higher weightages in the portfolio.
Q: Do you think the market is ignoring rising crude oil price risk?
A: The rise in the crude oil price (Brent) was expected to happen, but the range of recovery was expected to be up to $65-70. Currently, it has overshot that mark. The immediate factor that propelled the prices higher was the US withdrawal of the waiver granted to eight countries, including India and China, for import of oil from Iran. Though Iran’s supply is barely 5 percent of the total global supply, this announcement has some impact on oil prices, more due to the prevailing conditions in Venezuela and Libya.
But the prospects of Saudi and UAE enhancing the supply has helped moderate the prices to $71. But the transmission of the higher oil prices has not happened as yet due to the non-revision of prices by OMCs. Any persistence of prices above the $70 would start affecting the rupee and domestic price level gradually. The pricing in of this will happen over time, as this may have consequences even for domestic interest rates as well.
Q: Banking and financials are still leading the market higher. Do you feel the steam is still left in space or growth already priced in?
A: Banking and financial services sector always leads the rise in the markets. And now after a long time, the banks are in relatively better shape. Actions taken by the banks themselves for recognition and provisioning for NPAs, externally-induced changes like mergers and amalgamations, etc. have brought better order in the banking system. Credit growth has picked up gains to higher double-digit levels, and the RBI is supplying liquidity to the interbank market regularly.
Therefore, the sector as a whole is poised to do very well. The issues faced by lower rung NBFCs may continue to be there till the credit environment for them gets altered with a rise in the confidence acquired over time, while the larger ones are expected to tide over the current situation comfortably. There is also the likelihood of some of the micro finance majors coming back into the reckoning.
Q: Pharma space has been a laggard for long now. Is it the time to do value buying in the space?
A: Pharma has been a laggard, but may see an uptick in the next two or three months. Though there may be significant variability in the performance of individual entities in the sector, the entry must be selective, based on the extent of the domestic presence or business share of these companies, as also the quality of their compliance standards as far as global markets are concerned.
Q: What are key themes one must have in portfolio for double-digit return in FY20?
A: Banking and financial services, technology, consumption themes are good segments to look at for reasonably good returns, over the next couple of years. Apart from direct stocks, a well- informed selection of smart funds and PMS, may also deliver a good performance.
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