Until the general election, the Indian market will be volatile and the trend will be largely dictated by global cues. Investors will be better off to book losses in small-caps and invest in quality large-cap as well as mid-cap stocks.
December 2018 quarterly performance of India Inc. was weak along with corporate governance issue among some of the large corporates led to some correction which puts Indian markets in a sweet spot following attractive valuation.
While volatility has risen, equity investment has become a game of patience. The confidence seems to be at the lowest as a portfolio of investors have been halved in the majority of the cases, but one cannot forget equity has a decent history of generating superior long-term returns.
This is a good time to invest in the market as many quality names are off their all-time highs and are available at reasonable valuations. So, quality investing and diversification are the two main ideas for equity investing at this juncture.
There is no running away from the fact that the last year has been a challenge for many retail investors whose portfolio were dominated by small capitalization stocks. So, during times of market correction, their portfolio erosion is much more.
We are advising investors to sell small-cap stocks which are not backed by quality or have corporate governance issues and to recover the lost value we are advising them to invest in quality large-caps and mid-caps.
Market volatility has increased along with the market risk premium. In fact, non-frontline stocks are faced with additional challenges of liquidity. Thus, they could correct also significantly during periods of stress.
Hence, investors should be more focused on frontline stocks which can tide the market volatility better. We expect Nifty 50 index to remain range-bound in rest of February 2019 with a target of 10,900 on the upside. The immediate support for the index falls around 10,550-10,580.
However, a close below this range would indicate a larger degree fall with Nifty 50 index falling to 10,000-10,300 levels.
In such a scenario the companies having a high standard of corporate governance with decent earnings visibility should be preferred for value buying.
We envisage that Indian equities will remain volatile with a downward bias in the backdrop of uncertainty over the Lok Sabha election and deteriorating geopolitical environment.
In this regard, we advise investors to invest in quality names like HDFC Bank, Infosys, Titan and Ultratech Cement where downside appears to be limited.
An analysis of December 2018 ended quarterly earnings reveals that banks having sizeable corporate exposure witnessed a healthy recovery in earnings mainly led by improvement in their asset qualities and recovery in bad loans.
We believe this trend is likely to continue in subsequent quarters, and therefore like corporate banks like ICICI Bank and Axis Bank in a volatile market environment.
(The author is Head-Retail Broking, Reliance Securities)
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