Rally to a large extent depends on earnings tempo of these stocks
Brokerages are recommending investment-specific themes based on the Bharatiya Janata Party’s (BJP’s) manifesto to fire up the next round of market rally.
These recommendations are usually woven around themes such as infrastructure revival, reforms-driven public sector companies and consumer discretionary stocks, whose revenues are expected to improve with the revival in the job market.
Analysts say continuation of the rally will depend to a large extent on the earnings growth momentum of these theme-based stocks.
“We have to find those themes that have the least probability of negative surprise. So, we have adopted these strategies to minimise our losses in case of earnings disappointment,” said Amit Tiwari, portfolio manager of Escorts Securities. “Since the Indian electorate has given a clear mandate, the new government will try to fulfil its election manifesto by taking faster and bolder decisions. We have formulated our stock basket accordingly,” he said.
Edelweiss, in a post-election note, said, “We expect markets to remain buoyant – they don’t necessarily have to move in a linear fashion. In short, markets will respond to events such as cabinet formation, policy announcements, etc, and will pay little heed to incoming poor macro numbers.”
Therefore, brokerages have tried to do their stockpicking based on themes. For instance, stocks such as Crompton Greves, Grasim, L&T and Voltas have been recommended primarily because the BJP manifesto stated there would be a single-window clearance for industrial projects and emphasis will be given to building global manufacturing hubs as well as 100 new cities. Citi picked stocks such as L&T, Voltas, Crompton Greaves and Havells for a one-year horizon, but Bhel, Thermax and Cummins will be least preferred in the same period. The Citi report pointed out that discretionary spend will return, but it will be in a more phased manner. Stocks such as Bajaj Auto, Havells, Maruti Suzuki and Phoenix Mills will benefit from the rise in discretionary spending. There however, some brokerages that are still sceptical of the growth prospects. Centrum Broking wrote in a post-election note, “Unlike the previous upturns driven by regime changes, the new government will be buffeted by challenges that will at best yield protracted resolution. Whereas the capital productivity of the economy has deteriorated sharply, spare capacity in the form of fiscal, corporate or banking leverage is virtually non-existent. With a stubborn low growth-high inflation combo, bureaucratic inactivity, judicial activism and intransigence of states, it could be a long road to recovery, even for a majority government.” Though the market valuation is likely to remain elevated for the next six to nine months on the back of positive policy momentum, it has to eventually reflect in earnings growth.
There are, however, some brokerages that are still sceptical of the growth prospects