Expenditure on infrastructure and rural economy will be the key focus area in the upcoming Budget while LTCG implementation seems unlikely for FY19, Sahil Kapoor, Chief Market Strategist, Edelweiss Investment Research,
Q) The year 2018 started on a bullish note after a blockbuster 2018. The Nifty is already knocking on the doors of 11,000. Do you think the rally would continue till Budget?
A) I expect the rally to peter off. The F&O expiry for January 2018 could see profit booking and Nifty could come back to its support levels of 10,500 to 10,600 levels.
Q) The macro picture is fast deteriorating – at least it is not as attractive as it was back in the year 2016-2017. Do you think the hope based rally could push the index towards record highs?
A) The Indian macro remains a source of strength even in 2018. Inflation which is recovering from abnormally low levels is likely to stay below the Reserve Bank of India’s (RBI’s) mandated upper band of 6 percent.
Fiscal positions remain strong and FX reserves remain at an all-time high. The rally would need support from the earnings revival which seems to be gaining momentum in the current earnings season.
Q) What are your expectations from Budget from markets points of view? Do you think LTCG could become a reality in Budget 2018?
A) While fiscal discipline is the key. Expenditure on infrastructure and rural economy will be the key focus area. LTCG implementation seems unlikely for FY19.
Q) Any top 5 stocks which could turn multibaggers according to you in the next 2-3 years?
A) Here is a list of top five stocks which I think could turn multibaggers in the next 2-3 years:
1. Century Plyboards
2. Asian Granito
3. Motherson Sumi
4. Lumax industries
5. Can Fin Homes
Q) What will be your advice to investors for the year 2018 after a blockbuster rally seen in the year 2017?
A) The year 2018 will be more about stock picking and less about broadly based rallies. Focus on picking high-quality stocks with stories which have sound profitability profiles.
Q) What are your contrarian bets which hold potential to bounce back in the next 2-3 years?
A) Lupin from pharmaceuticals and NMDC from metals sector appear to be good contra bets.
Q) Expectations are high from the government about likely some package for the agricultural sectors to boost rural income. What are your expectations from the Budget from agri sector and what stocks are likely to benefit the most?
A) I expect allocation towards MNREGA, rural housing, rural roads, irrigation and interest subsidy for crop loans/rural housing to be the key deliverables for the upcoming budget.
Building materials, irrigation, and housing finance are likely to benefit along with some benefits flowing to two-wheelers and FMCG players.
Q) Valuations of small and midcap stocks are already trading at a hefty premium. Do you see the party continuing in this space and what is the kind of strategy which investors should adopt?
A) Investing in companies which can deliver sustainable growth in profits and has moat which is hard to breach over a period can deliver excellent returns. Turning your invested capital into a sizeable portfolio takes years of consistent performance and avoidance of ideas which can go sour.
Investors should adopt differentiated research while selecting investments and should avoid flavor of the month or quick rich ideas to avoid losses. The power of compounding invested capital through careful selection of investments is the mantra.
Q) Brent has already touched USD 70/bbl. What could be the repercussion for the market as well as for the economy?
A) The oil import bill is already up 24 percent in FY18. A further rise in oil prices could increase the Oil bill. The Oil trade balance has already deteriorated by 6 percent.
However, given the abundant supply in the oil market, the prices are not expected to run-up sharply which means more trouble from Oil seems difficult.
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