Maintaining a one-year target of 12,600 for the Nifty, Vinod Nair, head of Research at Geojit Financial Services, said that he is more positive on mid and small caps than the large caps.
"The economy did not improve as expected but liquidity in the equity market was well maintained," said Nair in an interview with CNBCTV18.com.
With rich experience in equity research, Nair comments on news impacting the equity market in India.
In the interview with CNBCTV18.com, he shared his views on what the market moving forward into 2020 looks like, whether it is the right time to invest in telecom stocks and Yes Bank, the global factors affecting the domestic market, small and mid-cap space and much more.
CY19 is coming to an end, how do you think the year went?
The economy did not improve as expected but liquidity in the equity market was well maintained. Leading to a polarised market, momentum was in high-quality stocks and sectors in the large-cap segment. The economic slowdown is due to the NPA problem, a slowdown in the world economy and structural changes in the economy like taxation, IBC, and demonetisation.
What are your expectations from the market for 2020?
We are very positive on next year in anticipation of faster resolution in the NPA issue and reform undertaken during the year to shift the domestic economy in FY21. Further stimulus, tax cut, US-China deal, Brexit and reduction in interest cost in India and abroad will benefit the equity market a lot.
With Nifty trading above 12,000 levels now, what is your year-end target for the benchmark?
We had a one-year target of 12,600 post the Q2 result which we are maintaining. Instead of Nifty50 or large caps, we are more positive on mid and small caps.
Telecom stocks have been in focus for a while now. With the telcos hiking tariffs, do you think this is the right time to invest in that sector? What is your top pick from the sector and why?
The financial feasibility of the sector has improved post the moratorium on spectrum cost and a huge hike in tariff. Still, we have to be stock specific given cashflow constraints in the sector. We have a positive view on Reliance Industries, due to solid outperformance of Jio and lack of cashflow issues.
Yes Bank has announced its capital raising plan. Are you convinced? Would you recommend the stock and why?
Currently, we have a ‘Reduce’ rating on Yes bank, and we continue to stick on our recommendation in spite of the current capital raising plan of around $2 billion announced by the bank. The key fact is whether RBI will give approval for those investors seeking more than 10 percent stake in the bank. Yes bank is currently trading at a significant discount and we can anticipate a re-rating if RBI gives approval for the capital raising plans or the company manages to get the funds from other sources and methods.
The global environment has been very volatile, with uncertainty around the US-China trade war continuing. What other global factors, do you think, can hamper investor sentiment in the country?
Brexit and geo-political concerns are the other two factors that can impact the sentiment of the domestic market. Brexit can delay recovery in the European Union while geopolitical risk can impact prices of oil, commodities and bond yield.
Most IT stocks have been in the red in the last 1 month. What do you think is the main reason behind that. What is your top pick in the sector and why?
IT companies had provided a cautious outlook on BFSI (banking, financial services, and insurance) segment due to weakness in technology spending in both US regional and European banks. In addition, higher US visa costs and subcontracting are putting pressure on the margin. However, we believe that the growth in the digital platform continues to provide cushion for overall revenue pick up in the long term. We have a positive outlook on HCL due to its inorganic growth and lower valuation, as well as on Tech Mahindra owing to decent traction in the 5G pipeline.
When you do see the consumer demand sentiment improving?
Firstly, the economy has to improve based on which the money supply in the hands of the household will grow. As consumer confidence comes back, the demand for credit will grow. Interests cost is reducing which will be a catalyst for more consumption in the coming year.
Are you still bullish on the midcap and smallcap space? can you name some of your top picks in the sector?
We are positive because of attractive valuation which is below the long-term average. The valuation will expand as the economy recovers leading to better earnings growth in the next 2-3 years. Few stocks on which we are positive are Indusind, L&T Finance, Avanti Feed, Moldtek Packaging, and Coromandel Fertilizer.
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