At a time when the Indian market has been struggling to keep its head above water, Sneha Poddar, AVP, Retail Research, Broking and Distribution, Motilal Oswal Financial Services Ltd (MOFSL), believes that 3Cs – Consumption, Credit growth and Capex -- to drive the stock market over the next few years.
In an interaction with Business Today, Poddar said that the Indian economy is largely domestic consumption driven which safeguards it from global havoc to a large extent. Thus, pick-up in the demand recovery pace amid the ongoing festive season and a cool-off in commodity prices would propel corporate earnings performance.
“India is also likely to benefit from ongoing problems in China, Europe, Russia and Ukraine given the Governments push to India’s manufacturing ecosystem through various reforms like Made in India and PLI, among others which would help India emerge as an export hub. Already huge capex has been announced both by the government and the corporates to capture this opportunity. This in turn has pushed credit growth to 9-year high of 15-16 per cent,” she said.
Her views came amid the ongoing weakness in the equity market. The benchmark BSE Sensex has declined 1 per cent year-to-date (YTD) to 57,625.91 on October 12, 2022 from 58,253.82 on December 31 last year.
While sharing her view on the market performance going ahead, Poddar said that the overall momentum in the market is likely to be positive given India’s inherent strength, though it would be clouded with bouts of volatility on account of fragile global macros. Nifty and Sensex have shown huge resilience compared with global peers as economic recovery sustains its path in India.
“Inflation also seems to be peaking out with major commodity prices cooling off which would provide support to the corporate earnings. Now with the first full-fledged ongoing festive season post-pandemic-induced hiatus of two years, domestic demand is strengthening with discretionary consumption especially getting propelled led by strong urban demand. Even credit growth has started witnessing strong upcycle led by huge public and private capex,” she said, adding healthy domestic macros and robust corporate earnings performance is likely to keep the overall trend positive.
Poddar expects Nifty to cross its all-time high of 18,600 by next Diwali and may even achieve a level somewhere around 19,000 in the next 12 months. The 50-share Nifty was at the 17,023-mark in the morning trade on October 13.
How to create a new portfolio?
If you are considering building a portfolio amid the ongoing uncertainty in the equity market, Poddar advised investors to zero in on themes like discretionary consumption, manufacturing and financials. “Under discretionary consumption, one can look at sub-sectors like retail, apparel, hotels and quick service restaurants (QSRs). In manufacturing, defence, capital goods, cement, auto and chemicals hold long-term potential. Banking and capital market-related companies are likely to do well in the financial theme,” she said.
Stocks to buy this Diwali
In financials, ICICI Bank would benefit from credit cycle revival, while Computer Age Management Services (CAMs), being a leader in the duopoly industry of mutual funds RTA with 70 per cent market share, would benefit from increased financialisation of the economy, the market watcher said. In the consumption space, Poddar believes that Metro Brands offers a long runway for growth and has demonstrated the ability to run efficient footwear ‘Retail’ network. In autos, Motherson Sumi Wiring, the market leader in the Indian wiring harness industry, offers a linear growth story as it leverages structural trends in the automotive market to drive strong growth and sustain high capital efficiency ( over 40 per cent) and high dividend payout. Lemon Tree in the travel segment would benefit from rising tourism and corporate travel.
Mistakes to avoid
Amid the ongoing volatility in the equity market, Poddar said that investors should avoid getting trapped in a volatile market by buying at the top or exiting at the bottom. “Many investors lack diversification in their portfolio. So instead of panicking, they should grab the opportunity to reshuffle their portfolio and add quality stocks across growing sectors at lower prices to generate good returns in long term. Many investors also discontinue their ongoing SIPs while they forget that investment at such times generates alpha to the portfolio in the long run,” Poddar said.
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