Diversify Your Investments

Sunil Jain Head, Equity Research – Retail, Nirmal Bang Securities

The Indian government and the RBI have handled the emerging market’s currency crises very well. Looking at the present Current Account Deficit (CAD) and the optimism shown by FIIs in bringing funds into India both in equities and debt, we feel the Indian rupee is heading towards appreciation.

The Indian equity markets are at an all-time high, but nevertheless valuations are reasonable. There is polarisation of sectors and stocks, some are at the peak of their valuations while others are at the bottom of the valuations. In the last 1-2 months, the markets have factored in some optimism of stable government and also by speedier policy decisions by the government.

As compared to other emerging markets, India has outperformed in the recent past on account of good policy decisions by the government and the RBI on the currency front, coupled with expectations of a stable government in the forthcoming Lok Sabha elections.

On the earning front, Q3FY14 results were more of a continuation of Q2FY14 results. Sectors that performed well continued their performance in Q3FY14. Similarly, sectors that did not perform in Q2 continued their under-performance in Q3FY14 too. Some domestic defensive sectors like FMCG and consumer durables showed deterioration in their performance. We do not see any great change in the performance of companies in Q4FY14.

Talking about currency, the Indian government and the RBI have handled the emerging market’s currency crises very well. Looking at the present Current Account Deficit (CAD) and the optimism shown by FIIs in bringing funds into India both in equities and debt, we feel the Indian rupee is heading towards appreciation. But the RBI may look at keeping the rupee stable and building reserves considering the recent decline in exports and create a war chest against any major outflows by FIIs in the event of any uncertainty.

Interest rates are heading down considering declining inflation, low growth rate and increasing liquidity in the system. All these factors suggest that interest rates should  have peaked out and should start coming down, if not in this period, then definitely around May or June.

The most important trigger that will drive the markets is the outcome of general elections. If the outcome is positive and we see a stable government, then definitely the market will see an upside. So, election results and the RBI’s direction on interest rates will be the main triggers for the markets, going forward.

Talking about global markets, I feel that:

•  Concerns over China have been factored into the commodity prices and may not go further down. 
• The US economy will continue to do well.  
• Gradual improvement is likely to happen in the European economy.

On the domestic front, we continue to remain positive on sectors like Pharma and IT and would like to take some risk for revival in the economy post-elections with bets on some private banks, Auto and some PSU stocks where the valuations are quite attractive. Stock-wise, we like Aurobindo Pharma, Lupin, TCS, Infosys, ICICI Bank, Mahindra and Mahindra, ITC, Coal India and NTPC in large-caps. Among mid-caps/ small-caps, we like CCP Product, Finolex Industries, Escorts, DCB, Bajaj Finance, Balrampur Chini, Aegis Logistic and Everest Industries. 

At this juncture, we recommend retail investors not to worry about all-time high markets and invest in the market as valuations are reasonable. The risk-reward at current levels is still in favour of investing in the equity markets. So, one should go DS ahead and invest.