Despite alarming deterioration in many macro indicators, fall in
currency value, hike in rates, sub-par corporate performance and moderation in
flow (both domestic and external) during 1HFY14, the Indian equities have been
rather resilient. Nifty has averaged ~5800 in 1HFY14, almost same as 2HFY13.
The collective wisdom of the market therefore appears to be much
more sanguine about the economic conditions, and therefore corporate
performance, as compared to most sell side analysts.
In our view, both of these two may eventually prove to be right.
Nifty may gyrate in the range of 4700-6700 in next 15months, i.e., a range of
15-18% from the current level.
We evaluate the cases for 4700 and 6700 Nifty levels and suggest
a strategy which in our view would be appropriate under the circumstances.
Case for 6700
The rise in domestic participation and return of EM
generally in favor is therefore the key to the bull case for the market.
In our view, the upside triggers would mostly be domestic, e.g.,
improvement in macro fundamentals, improved political environment post 2014
election, inflation peaking out next year on high base effect, peaking of
rates, improvement in external trade, and pick up in investment cycle.
The earnings profile of large corporates with geographically
diversified global business profile could help aggregate earnings numbers to
show a better picture from 2HFY15. Though, mid and small enterprise should continue
to struggle and post poor performance. The financials therefore would continue
to experience deterioration in asset quality.
The 15-20% higher index levels will thus mostly be a consequence
of 15-20% higher earnings .over FY14-FY16 rather than any multiple expansion.
The multiple on the contrary might see some contraction at aggregate level.
However, we may see some multiple expansion in capital goods, infra and
financials while multiple of defensives contract a bit.
In strict technical terms, Nifty has potentially formed a
bullish inverted Head & Shoulder pattern on weekly chart. With Left
Shoulder at 5566 (Week ended 28 June 2013), Neckline at 6093 ( week ended 26
July 2013) , Head at 5118 (week ended 30
August 2013) , Neckline at 6145 (20
September) and probably right shoulder at 5700 (week ending 04 October 2013). A
rally beyond 6150 on weekly close basis may take Nifty to 6700-6800 range.
We however do not see how the prospects of Nifty rising 15-20%
would motivate foreign investors to specifically invest in “Indian equities” in
a major way, as in all likelihood the currency will remain under pressure,
rates will likely peak at elevate level and other EMs will likely outperform
India should US and EU economies stablize. The rise in domestic participation
and return of EM generally in favor is therefore the key to the bull case for
the market.
While we do not see much chance of domestic investor coming back
to equities in a big way in next 6months at least (deposit rates are rising
making risk reward unfavorable), watch for deferral of US QE tapering, and
further stimulus by BoJ and ECB for more clues.
On Monday we shall discuss the case for 4700 Nifty level
Thought for the day
“Maybe Christmas, the Grinch thought, doesn't come from a store.”
Dr. Seuss (American, 1904-1991)
Word of the day
Emanate (v)
To flow out, issue, or proceed, as from a source or origin; come forth; originate.
(Source: Dictionary.com)
Shri Nārada Uvāca
The SC order applies only to election to the Parliament of legislative assemblies/councils.
What about extra-constitutional posts like Chairman/Convener of NDA or UPA or Third Front.
Should those speaking against the Ordinance, amend their respective party constitutions to disqualify such persons from primary membership and all other posts.
No comments:
Post a Comment