Cheer up investors! Market’s best is yet to come, say top fund managers

MUMBAI: Expectations of a revival in corporate earnings have been baked into stock prices after the recent record-breaking rally but there is yet more steam left in the market run-up. The Nifty could give at least 2-4% return by December, said a majority in an ET poll of 25 leading fund managers, research heads and brokers conducted over the weekend. The poll showed 33% of the participants expect the Nifty to hit 10,300-10,500 by the end of 2017 against Friday’s 10,066 close. Reliance Industries, ICICI Bank and State Bank of India are the top picks. Poll participants maintained their positive bias on the market’s direction but unlike previous forecasts, the optimism was tinged with watchfulness given the almost unilateral run-up in stocks that has led to the Nifty crossing the psychologically crucial 10,000 mark. Further delays in the much-awaited rebound in earnings recovery, geopolitical risks and elevated share valuations were the top concerns for most poll participants. Fewer poll participants were willing to assign aggressive targets to the Nifty for the year end. The most optimistic —10% of participants — felt the Nifty would cross 12,000 by December, which is 19% above the index’s Friday closing price. A fifth of poll participants expect the Nifty to end the year between 10,800 and 11,000, which is a nearly 10% upside, while 14% said the index could close at 10,500 to 10,800. “The Indian stock market is priced to perfection,” said Nilesh Shah, CEO, Kotak Mutual Fund. “The upside is capped by valuations and geopolitical events while the downside is limited by liquidity, smooth implementation of GST and expectation of a better demand in the forthcoming festive season.” About two-thirds of participants said they do not expect a correction of more than 5% in the near term. This is mainly because of uninterrupted purchases from domestic mutual funds, the equity schemes of which have been inundated with inflows from retail investors, who are continuously shifting investments from debt, real estate and gold to stocks, where the bull run will enter its fifth year in September. Brokers said what was different in this rally compared with the previous one is the absence of a correction. “Markets are overheated but reluctant to fall as uninterrupted flow of liquidity limits fall in every weakness,” said Motilal Oswal, chairman and managing director, Motilal Oswal Financial Services. Kotak’s Shah said he does not expect a “major correction in near term except a few technical ones”. So far in 2017, the Sensex and Nifty have gained 23%. While Reliance Industries has outperformed the markets so this year with 50% returns, ICICI Bank and SBI have gained 29% and 23%, respectively. Domestic mutual funds have invested nearly Rs 53,000 crore since January, while foreign portfolio investors (FPIs) have pumped Rs 58,000 crore into Indian stocks so far compared with Rs 38,000 crore in the similar period last year. Foreign inflows slowed down in July but few overseas investors have been in a hurry to sell despite clear indications of the US Federal Reserve signaling that it intends to roll back its loose monetary policy. Higher interest rates in the US could lead to a stronger dollar, eroding foreign investors’ share portfolio values in India. WHAT TO BUY Poll participants are advising investors to stick to banks — especially private sector ones — automobiles, consumption, cement and metal themes. At the same time, the participants warn that sectors such as information technology and pharma may continue to underperform the market. Among mid-caps, RBL Bank, Exide Industries, Voltas, Graphite India and Ramco Cement are likely to be outperformers.
Source: ET