HDFC Securities prefers domestic-oriented business and favours opportunities in the materials, pharma, oil & gas, small finance banks, petrochemicals, consumption, power EPC and restructuring sectors for the next year.
With a focus on these sectors, the brokerage picked Dr Reddy’s Laboratories, Equitas Small Finance Bank, GAIL (India), Godrej Industries, Grasim Industries, Gujarat Alkalies & Chemicals, Indian Oil Corporation, Kalpataru Projects International, Reliance Industries and United Spirits for Samvat 2080. “These stocks have robust fundamentals and some margin of safety in their valuation to offer superior returns to investors,” HDFC Securities said.
Since last Diwali, domestic equity markets delivered robust return to investors, generating substantial wealth for investors. Though, the BSE Sensex gained just 7 per cent, the broader market outpaced the benchmark index. The BSE MidCap and BSE SmallCap indices have soared over 26 per cent and 29 per cent, respectively, since October 24, 2022.
The remarkable performance of the Indian economy and equity markets in the last year has underscored the country’s potential as a significant player in the global financial landscape, inviting both domestic and international capital to participate in its growth story. As a result, foreign institutional investors bringing in net inflows in all months expect January-February and September-October. Overall, they bought shares worth more than Rs 1.40 lakh crore in the past one year. Meanwhile, several global financial institutions and brokerages upgraded the GDP forecast for India while downgrading that of several other countries/regions.
Global financial services firm JP Morgan said that it will add Indian G-Sec to its Government Bond Index-Emerging Markets suite of fixed income benchmarks commencing June 28, 2024, with a maximum index weight of 10 per cent. According to HDFC Securities the inclusion is likely to attract between $20-30 billion of net foreign purchases into domestic debt market. Morgan Stanley on October 20 upgraded India to “standout overweight”, citing the relative economic and earnings growth is improving, and the macro-stability setup looks sufficient to withstand the higher real rate environment.
Going ahead, the central bankers, finance ministries as well as investors will struggle with inflation that is proving to be sticky so far (led by supply issues in commodities) and the resultant high interest rates. “If this situation does not resolve soon, global economic slowdown cannot be averted. The new conflict in Israel-Hamas in addition to the existing Russia-Ukraine conflict could divert resources, attention, and curb risk appetite of investors globally. Rising bond yields are impacting equity market valuations and corporate profitability. It is essential for investors and companies to adapt to changing economic conditions and market dynamics to navigate these challenges effectively,” HDFC Securities said in a report.
On the other hand, macroeconomic indicators like GST collections, direct tax collections, PMI Manufacturing and Services and current account deficit remain positive.
Considering the present market conditions, HDFC Securities believes that markets to be volatile till June 2024 even as the outcome of state and central elections will be watched closely.
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