As we enter Samvat 2081, Sachin Shah of Emkay Investment Managers said maintaining the asset allocation discipline holds paramount importance. The fund manager said both Sensex and Nifty have risen nearly 50 per cent in the past 18 months, while the broader indices are up more than 70 per cent. Given this background, the Executive Director and Fund Manager at Emkay believes it is fair to moderate return expectations over the next twelve to eighteen months.
"Many stocks are trading at decent valuations (PE multiples), so there may be limited room for PE re-rating. Over the next twelve months, an earnings growth of 12-20 per cent should be reflected in stock price returns. With that perspective, a Sensex range of 90,000–95,000 and a Nifty range of 27,500-29,000 would be a reasonable expectation," he said.
Shah said retail investor sentiment toward Indian equities has been steadily rising over the past 3-4 years. This sentiment has driven significant funds into Indian equities via mutual funds, direct equity through online brokerage platforms, and higher allocations to equities in insurance and savings schemes like NPS.
"Despite multiple challenging events, such as the Russia-Ukraine war, central election outcomes (e.g., BJP not securing a full majority), and the Israel-Palestine-Lebanon-Iran conflict, retail sentiment has remained resilient. Thus, retail investor sentiment appears upbeat and stable, so one should avoid second-guessing potential dampeners for the markets," he said.
4 smallcap stocks to buy Shah expects sectors like CRAMS (Contract Research and Manufacturing, Custom Synthesis), auto-ancillaries (exports), and private sector baking space with strong franchises to outperform. Global customers are creating alternative supply chains to reduce reliance on Chinese manufacturers, benefiting Indian companies, large and small, in CRAMS and auto-ancillaries. Among small caps, Shah likes Laurus Labs, GMM Pfaudler, and Igarashi Motors. In private banking, aside from the top three banks, Shah's fund prefers Federal Bank.
Shah said the recent rally in midcap and smallcap spaces has led to pockets of exuberance, where stock prices have surged ahead of time. If earnings fail to meet expectations, these inflated valuations may lead to disappointment and correction, he warned.
Nifty stocks to buy Shah believes private sector banking, IT, pharma, and select auto stocks will outperform the market going ahead.
Leaders in each of these sectors, such as HDFC Bank Ltd, ICICI Bank Ltd, Infosys Ltd, HCL Technologies Ltd, and Sun Pharma have posted results exceeding the Street estimates.
"Valuations in private sector banking remain reasonable following underperformance over the past 2-3 years. In autos, select companies like Maruti and Eicher Motors should benefit from the ongoing premiumization trend," he said.
Shah said large private sector banking stocks such as HDFC Bank Ltd have underperformed in recent years and now trade at reasonable valuations.
Their strong deposit franchise and resilient asset quality are starting to reflect in their results and should continue, he said.
PSU rally over? Shah said the past couple of years saw a sharp rally in defence, railways and PSUs as a pack due to significant under-ownership. Depressed valuations have largely been corrected, and unless earnings growth picks up, a near-term bounce-back in stock prices may be unlikely, he said.
Will FPI outflows halt? In the first nine months of 2024 (Jan to Sep’24), FPIs were net investors of Rs 2 lakh crore. However, in October, they were net sellers of nearly Rs 1.2 lakh crore, effectively selling 60 per cent of what they bought in the first nine months. This data suggests we may be nearing the end of high-intensity FII selling, Shah said.