Ajay Jaiswal President-Investment Strategies, Head of Research, Microsec

The Indian Market is in a sweet spot of renewed vigour enhanced by improved sentiments on the change of Guard at the Centre, which is historic. India is better placed in many ways to other emerging economies. One, the country has a stable government with a single majority in parliament after 30 years. Two, the INR has got stable unlike some other emerging market currencies which are still vulnerable. Three, the demographic dividend of a large population especially in northern states are likely to see significant growth, fueling the overall growth of the economy. On valuation parameter, India is trading at a premium to most emerging market, but that is justified as India’s is a structurally diversified economy.

On the earnings front, Q4FY14 has broadly been in line with expectations with some surprises in BFSI segment which has done ahead of expectations. IT has seen a mixed set of numbers with INR having appreciated in the latest quarter taking a marginal toll on margins of some IT companies. On an aggregate basis, sales growth for a sample of 850 companies has grown ~13% against ~7% in the previous year and net profit has registered a growth of ~21% against 6.5% in the previous year. However, the second half of FY15 may see recovery in earnings, primarily in cyclicals led by cement, automobiles, consumption based sectors, BSFI.

Coming to the currency front, the INR is expected to move in a range of 56-60 for CY14. Despite massive inflows which are expected to come to India as the economy growth accelerates, we believe the US Federal Reserve may tighten interest rates from 2015 onwards, which may put pressure on the rupee from appreciating. Also, a growing India would need to import raw materials and food which may not be available in sufficient quantities within the country.

We expect interest rates to remain elevated for the next six months as there are no foreseeable signs of inflation coming down. Moreover, if India has deficient rainfall because of the El Nino as it being projected, inflationary conditions will be further unfavorable which may make it hard for the RBI to bring down rates. I personally feel that it is unfair to raise rates to bring down inflation, as India is a growing economy and our prime objective is to create jobs and supply rather than kill demand.

The major trigger for the market is a stable government with a single majority which is already in place. This gives them enough space to expedite decision making. The Interim Budget to be announced by the incumbent government sometime in July 2014 may act as a major trigger for the markets as it would give a clear picture of the government on growth objectives and the speed at which they want to achieve the same. Other than that, long pending labor policies, export import policies and FDI policies in certain sectors can act as triggers for the market.

Global markets are likely to remain subdued due to lack of major triggers. As US Fed cut on bond purchases and completely bringing QE to a halt, expectations of increase in rates in US will do the rounds whereas speculation of selling of bonds which has been piled up with Fed may keep fears alive, thereby restricting gains in US equities. However, in the era of low interest rates and quantitative easing in the US, major companies in the US have increased their balance sheet and acquired global companies or consolidated within their own country. Therefore US markets may consolidate whereas select European markets which are recovering from recession may show resilience. However, Chinese markets may continue to struggle on slowdown in growth.

We remain positive on cyclicals across metals and mining, PSU Banking, oil and gas especially in the ancillaries, auto mobiles and auto-ancillaries, industrials. However, we believe erstwhile blue-chip companies in the PSU space may be re-rated as they remain highly undervalued and with prospects of better governance and management are likely to scale up their operations. Our top picks are Engineers India, Aban Loyd, Selan Exploration, IL&FS transportation, Blue Star, Whirlpool, Maharashtra Seamless, Balmer Lawrie, Max India, IDFC, Bayer Cropscience, Bharat Electronics, Indian Hotels, Mahindra Holidays, Container Corporation, IGL, MOIL, SAIL, Coal India, SBI, M&M, L&T, Maruti, IOC, ONGC, Tata Power.

I would advise retail investors to invest on a systematic basis, popularly known as SIP. Equity investments should be done on a long term basis and retail investors should preferably invest through the Mutual Funds route. If investing directly into the market, retail investors should refer to research reports of reputed analysts/research houses that has a track record of having researched quality stocks. They should invest in companies with sustainable business model, good management with proven track record