S Ranganathan, Head of Research at LKP Securities said he would not be surprised if the Nifty ends CY2018 with 11,500 target.
CY 2018 could be the year of stock specific stocks, he told Moneycontrol’s Sunil Shankar Matkar.
Q) 2017 has been a great year for Indian equities as the market grew by around 29 percent. Do you see same kind of rally in frontline and broader markets in 2018 also and what is your Nifty target for December 2018?
CY 2017 has truly been a good year for equity markets in India although globally other markets have fared even better, but for CY 2018 investors need to tone down their expectations.
But having said that I would not be surprised if we do end CY 2018 with a NIFTY level of 11,500.
Q) What are the next key events (or themes) to watch out for the year 2018? Will those events drive the market up or down?
The reason for going with a modest target for CY 2018 is primarily due to geopolitical landscape globally and the fact that the investment cycle in India is yet to take off meaningfully although we are just about beginning to see some green shoots.
The gross fixed capital formation at 27 percent bears testimony to the fact that Indian corporates have yet to begin investing in new projects meaningfully.
While CY 2017 saw some of the Macros do well, we could see improvement in the Micros during CY 2018. But since individual stocks have already run up much ahead we are going with a modest target for the index as such although select individual stocks could fare significantly better due to themes like GST, financial inclusion & capex recovery.
Q) The domestic liquidity supported markets in the year 2017. Will that liquidity support continue in 2018 as well or do you see some tapering of flows?
What is your view on FIIs flow? While there is no doubt that demonetisation did help domestic liquidity in equities during CY 2017, we expect the trend to continue during CY 2018 as well although the FII could book profits this year as they have options available in other markets as well.
Q) India Inc raised over USD 11 billion through IPOs in 2017. Will 2018 be another golden year of IPOs?
We expect the IPO markets to fare equally well in CY 2018 with probably USD 10 billion being raised this year as well.
Q) Everyone is saying corporate earnings were far better-than-expected in September quarter. Do you see December quarter earnings laying foundation stone of earnings recovery?
In our view the December quarter earnings may not be exceptionally good but would positively surprise the street in select companies and we would rather be keen to watch the Q4 earnings for a more realistic peep into CY 2018 as improvement in Micros could propel the index to our price objective of 11,500 on the Nifty.
Q) The next big event the market will watch out for will be Union Budget. What are you key expectations from the last full-fledged Budget. After Gujarat elections there are as many as 8 state assembly elections lined up before general elections in the year 2019. Do you see a change in tactics of the Modi government or a policy shift in policy framework – from reformist to populist?
While the recent victory in the key state of Gujarat has certainly been welcomed by the street and given the many assembly elections coming up ahead of the general elections in 2019 we could see some kind of populism in the ensuing Budget as there could be a rural tilt but that by itself does not mean that the reform process has taken a back seat.
The uncertainty surrounding the GOI stance on fiscal deficit and it stance on market borrowings have been keeping the bond markets nervous as evident in the climb of the 10 year benchmark.
Q) Top five stocks which you think could give multibagger return in the next 2-3 years?
In our view CY 2018 could be the year of stock specific stocks and we believe that investors with more than two-year time horizon could end up doubling their money in the following five stocks.
Action Construction Equipment
Action Construction has a virtual duopoly in mobile cranes with significant market share. It is a perfect proxy to play the capex recovery theme in India both with respect to road construction as well as farm equipment.
It is a classic duopoly with a unique business model having a predictable double digit revenue growth as well as predictability in compounding earnings at a CAGR of 20 percent.
Superior gross margins of 55 percent coupled with multiple upside triggers makes the depository a unique choice in the fast growing financial services space.
Exide has a duopoly in batteries segment. An underperformer within the sector is at the cusp of an inflexion point as the GST regime coupled with various initiatives to wrest market share from peers begin to propel this debt free entity with a strong brand pull to higher levels.
The Rs 6,000-crore entity is making rapid strides in its branded apparel segment given its power brands as the disruptions on account of GST is now behind.
And value unlocking from its surplus land in Thane coupled with planned initiatives on non-core business as well as other new age business could in our view propel the company towards the next leg of growth.
Large diversified fully integrated agrochemical player with global footprints backed by huge distribution network is in our view perfectly positioned to leverage on its pool of product exclusivity and product registrations.
Gross margins of more than 50 percent with healthy return on equity of 23 percent makes UPL our pick to play the global agrochemical theme.
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