Bull case intact; one sector that will still make you money amid market fall
The Nifty is precariously poised near crucial support of 10,200. In case of the violation of 10,160 support, Nifty could extend the fall towards next support of 9,920. In derivatives markets, Calls have been written at aggressively near 10,300 levels. In the nutshell, one should remain cautious on the markets.
Nifty on the brink: The Nifty closed closed the week at 10,195, losing about 0.3 per cent. Midcap and Small cap indices outperformed the Nifty by rising 1.59 per cent and 1.9 per cent respectively. Markets are in short-term funk and till the recent top of 10,479 is not decisively crossed, 10,400 would act as a strong resistance. The Nifty is precariously poised near crucial support of 10,200. In case of the violation of 10,160 support, Nifty could extend the fall towards next support of 9,920. In derivatives markets, Calls have been written at aggressively near 10,300 levels. In the nutshell, one should remain cautious on the markets.
Fed Meeting next week
All eyes next week will be on the US Federal Reserve’s policy meet on Tuesday and Wednesday. Though there has been a talk of a 0.50% rate hike, we expect them to hike rates by 0.25 per cent. This will be new Fed Chair Jerome Powell’s first meeting after taking the seat from Janet Yellen. Our markets will react to the US news only on Thursday.
While on Thursday BoE is expected to keep interest rates and its asset-purchase program unchanged.
Long-term bull case is still intact
We believe the selling in Equities for tax reasons could continue till the March settlement , but the next settlement of April should augur well for the bulls.
The global economy is in sync for the first time in a dozen years and global profit margins are at a high; in the US, a corporate tax cut is big icker for growth next year, which in today’s sticky, more monopolistic world, is unlikely to be quickly competed away as theory suggests, but very likely to further fatten the corporate share of the GDP pie. So we expect US markets to rise after this correction runs its due course.
We expect Nifty EPS of FY18/19/20 to be 500/600/700. Short term risks which has led to correction and consolidation in the short term. However the long term bull market is still intact and will exert itself once this short term correction plays out. Eventually the correction will provide an opportunity to enter sustainably profitable business with a lot of margin of safety.
Media and entertainment is the sector to watch. In their recent reports on 2018 advertising outlook, predicted 12-13 per cent ad growth for the Indian industry. Radio is likely to post ~15% growth as new stations achieve better inventory utilisation. TV will grow at 13 per cent, led by the FMCG sector’s aggression to tap into reviving rural demand. Add media stocks in the current corrections.
By Devarsh Vakil
(The author is Head – Advisory (Private Client Group) at HDFC securities)
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