Brokerages upbeat for Samvat 2072 on better macros

Buoyed by dip in deficits, inflation & stable rupee

Performance of the Indian equity markets in Samavat 2071 was subdued on standalone basis though it did relatively better than its emerging market peers. This underperformance is largely the result of the high expectations investors placed on the newly-elected NDA government. Thus, the Indian markets witnessed a front-ended rally in 2014, which saw the year close with a return of 31 per cent, thanks largely to the general elections (mind you, little changed on the ground).

Now as the flattish Samvat 2071 draws to a close, the market is hopeful of good times in Samvat 2072, given shrinking twin deficits, lower inflation, falling interest rates, a largely stable currency and strong flows from domestic institutional investors.

Kotak Securities expects fiscal reforms to pick up speed, important legislations, especially the Goods and Services Tax, to be passed (even if in a diluted form), inflation to trend lower and monsoons to be better.

Dinesh Thakkar, Chairman and MD at Angel Broking expects further reduction of 50-100 basis points in policy rates that could improve earnings.

Potential to scale highs

“All the macro improvements, coupled with a strong stable government with effective leadership at the helm, have placed India in a position from where, not just a year or two, but the forthcoming many years, look filled with potential to scale new highs,” Thakkar added.

The only worry is decline in foreign inflows into emerging markets on account of the slowdown in China, sharp currency movements and spike in oil prices in future.

Firms with evolving macros

In terms of top picks, brokerages like only a few large-cap stocks and a host of mid-cap companies.

This is because any economic revival will boost the earnings upside of mid-caps more than of the large companies due to lower base of the former. Overall mid-cap companies have experienced greater compression in earnings than their large-cap peers.

Angel Broking prefers companies with strong competitive advantage, benefiting from evolving macros. “From a bottom-up perspective, we continue to like select emerging mid-cap companies with strong brands, entrepreneurial success and healthy growth outlook,” it said in a note.

Top picks

Infosys, L&T, ICICI Bank, HDFC Bank, Tata Motors and Maruti Suzuki India are the common top picks among brokerages, such as Angel Broking, Edelweiss Broking,

Sharekhan and Kotak Securities. There are 29 mid-cap companies as top picks of these brokerages. Of the 35 top picks, 21 belong to sectors such as infrastructure, financial services, automobiles, pharmaceuticals and FMCG.

Source : Business Line