Rally to a large ex­tent de­pends on earn­ings tempo of these stocks

The Economic Times - - Markets & Finance -

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

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