Failure to record strong earnings may trigger correction in the market: Deepak Jasani
Jasani expects Finance Minister Arun Jaitley to allocate higher funds into infra, rural and housing in Budget 2018.
Fiscal deficit will only marginally overshoot the budgeted target in FY18, said Deepak Jasani, Head – retail research, HDFC securities, in a brief interview with Aprajita Sharma. He expects Finance Minister Arun Jaitley to allocate higher funds into infra, rural and housing in Budget 2018. Excerpts:
1) Markets are ruling at all-time high levels largely on account of global liquidity. Do you think that the consensus earnings estimates are too optimistic to be met? Can earnings catch up valuations? If not, is correction looming?
Consensus earnings have been optimistic every year at the beginning and scaled down as the year goes by. This time we will have to check whether a similar trend will pan out again, but hopes about corporate earnings recovery are high given the low base of the last few quarters due to disruptions. Failure to record smart growth in corporate earnings could lead to a correction in the markets.
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2) The rally in the market has been selective. Just a handful of Nifty50 stocks have delivered 20-40 per cent return in its run up from 10,000 and 11,000. Can you suggest sectors that one should be focusing on?
Every leg of rally will be led by a few sectors and stocks. IT, oil & gas, private banks and auto stocks did well in the last rise of Nifty. Agriculture, Infrastructure, Metals, BFSI, are some sectors that could do well from here with some intermittent corrections.
3) What are your top three hopes from Budget 2018? What are the fears?
Hopes: Fiscal deficit for FY18 will overshoot the target only by 15-20 bps. higher allocation to infra, rural and housing, tax benefit to individuals by way of higher exemption limits.
Fears: Levy of tax on LTCG, Lot of populist measures accommodated under aggressive revenue assumptions.
4) With midcap valuations rising, do you see largecap space as a safer bet?
While the largecaps have their own headwinds in different spheres, mid and small caps will keep throwing surprises in stock moves based on their small size and base, faster adjustment to emerging changes, financial and operational restructuring and corporate announcements including merger, demerger, hive-offs, turnaround, asset value unlocking etc. Hence, midcaps have done well last year and selectively they can keep doing well, although on a broader basis, they seem overvalued. As far as the largecap space is concerned, Nifty is currently valued at 18-19 times FY19 EPS, which is on the higher side. Investing in largecap stocks may limit the downside (as compared to midcaps) in case the markets correct sharply from here.
5) Market paid heed to Gujarat elections quite a bit. 8 state elections are lined up in 2018. Will the market pay similar attention to these elections as well? Can we expect a spike in volatility?
We could see some political slugfest ahead of elections. Ahead of large state elections like Karnataka and Rajasthan we could see some anticipation and volatility. This could create some temporary nervousness in the markets.