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Udayan Mukherjee: Focus on specific stocks in a range bound market; recovery to be slow

Updated : October 28, 2019 07:19 AM IST

The last one year has been tough for the markets with only five stocks pushing the Nifty above the 10 percent mark, said Udayan Mukherjee of CNBC-TV18.

He added: “The CNX-500 is down 10 percent and I suspect most portfolios have ended in the red over the last one year. Gold on the other hand is up 30 percent and that is a measure of how risk-averse people have been and small-caps and midcaps have had a very-very rough year. But that's all in the past. The key question is what lies ahead for the next one year."

He continued: “I think the two things to focus on over the next one year are basically how active will the government continue to be in trying to stimulate economic growth. They have taken a few steps. The corporate tax cut is the single most important reason why the Nifty has put on those 10 percent gains. I mean, without that tax rate cut we could have been languishing at 10,600-10,700 and the Nifty would have been flat for the year. The 1000-point rally has come after the corporate tax rate cut and it's a significant move."

According to Mukherjee, the government is likely aware that the ongoing economic slowdown is deeply entrenched.

“This opens the window for the government to be more active on the stimulation front and maybe it will have to do more out of sheer desperation to stoke consumption. Capex [capital expenditure], I don't think will come back in a hurry but to stoke consumption the government will do more and that has ramifications for the stock market returns as well. So, the first thing to focus on is how much more can the government and the RBI [Reserve Bank of India] do in ensuring that 5 percent was the GDP-low and we can slowly recover from here. Slowly is the keyword out here,” added Mukherjee.

On global markets, he said, “The other big trigger which we are not talking about so much these days is what happens to the global outcome because from October this year October next year is the window which will make clear whether the world is going to hit close to recession-like conditions or will get a flight and will not be a hard landing.

“On these two outcomes — how much the government can do to stoke recovery and what will be the global outcome — on it hinges the stock market possibility for the next one year. The second is more difficult to predict -which is what the global outcome will be and that will cause intermittent volatility in the market.

“Therefore, my best guess is that it will be a range bound kind of year. Investors will do better to not focus on the Nifty and to set Nifty targets. Even this year in a subpar market, we have seen many stocks generate very good returns. Focus on specific stocks and be prepared for a fairly range bound kind of market because the recovery will probably be slow,” Mukherjee added.

Talking about sectors to focus on for Samvat 2076, Mukherjee said: “My hypothesis is that the 3Cs — will continue to do quite well. And from that basket you have to pick the best — consumption, corporate banks and chemicals.”

Disclosure: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.
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