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Calendar year (CY) 2013 has been quite eventful for the global equity markets. Indian benchmarks – the S&P BSE Sensex and the CNX Nifty – touched a new high after almost six years. As the year draws to a close, investors hope that the New Year will bring more cheer as their wealth / investment grows.
Prime Minister Manmohan Singh, too, had set himself the task of reviving the animal spirits of businessmen, attracting capital flows to prop up the rupee, revisiting aggressive tax enforcement, and turning around the fortunes of the mutual fund and insurance sectors as he attempts to put the economy back on the rails.
Here is what the top brokerages and research houses across the country believe how CY2014 could pan out for the economy, equity markets and the rupee as they crystal-gaze into the future. They also suggest a few stocks that they are bullish on.
Dhananjay Sinha, head of institutional research, Emkay Global Financial Services
The advent of QE tapering and expected macro adjustments in FY15 will contest the renewed market exuberance seen since mid-FY14. In this context, optimistic earnings projections for the benchmark indices can trigger volatility going forward. Reverse-decoupling arising from the global rebalancing process is emblematic of a stronger US recovery.
We are Overweight (OW) on Technology, Healthcare, Media and Telecom. Our tactical OW on Agri and election-related themes has played out, and we scale it down to Equal Weight (EW). Our Underweight (UW) view on Banking remains on concerns on asset quality, rates outlook and re-capitalization of PSU banks. The preferable Auto stocks (EW) are tilted towards two wheelers, auto ancillaries and Tata Motors. We are EW on Oil & Gas, with a constructive view on Reliance Industries. We maintain UW on Capital Goods, Metals and Real Estate and EW on Cement and Power utilities
Varun Goel, head of portfolio management services, Karvy
We see 2014 bringing a new bull cycle into existence. A good monsoon, strong export sector, continued recovery in US and a stable Euro area are significant positives for equity markets. With domestic macro-economic data also on the mend, we are aggressive buyers of Indian equity. We have a year-end Sensex target of 24,800. Corporate earnings growth has started to recover since the last quarter. Sensex earnings growth has improved from 5% in FY13 to about 10% in FY14 on the back of INR depreciation. For FY15, we would expect a Sensex EPS growth around of 15%.
With interest rates not expected to increase a lot, we have turned positive on interest rate sensitive sectors like banks and automobiles. Public sector banks are trading at quite cheap valuations and we expect significant outperformance from that space in the next two to three years. We expect export oriented sectors like IT to continue to benefit from the significant rupee depreciation seen this year. Telecom is another sector which might deliver strong earnings due to return of pricing power and reduction in competitive intensity.
Daljeet Kohli, head of research at IndiaNivesh Securities
Aurobindo Pharma, Bajaj Finance, Cairn India, Coal India, J.B. Chemicals & Pharmaceuticals, Mahindra & Mahindra, Mastek, Max India, Reliance Industries and Sesa Sterlite are our top picks for 2014
Jagannadham Thunuguntla, strategist and head of research at SMC Global Securities
The domestic markets may touch new highs in the next year post general elections, attracting offshore funds despite an expected bumpy period for Emerging Markets (EM) as the Fed shifts the monetary policy. Moreover, the various efforts taken by the Government and the RBI to bring down Current Account Deficit (CAD), to cushion the free fall of rupee, boost manufacturing and curb rising inflation have indeed sent out positive vibes, are likely to translate into growth numbers in the coming years. Moreover, the factors such as improvement in economic activity, better policy decision-making by the newly elected stable government post election and an improvement in the investment climate are likely to stimulate bulls in the markets.
Back home, apart from the general election, other major events, which are likely to keep investors tizzy to some extent are tapering of the easy liquidity policy by the US Federal Reserve which would result into the squeezing of the liquidity from the markets and China's growth and its interest rates. The cumulative effect of both namely Fed tapering and tighter China interest rates is likely to weigh on the Emerging Market (EM) in the year 2014.
Top picks for 2014: Adani Ports, Cairn India, Crompton Greaves, Escorts, Essel Propack, M&M, Punjab National Bank, Sesa Sterlite, Torrent Pharma and Wipro
Kunj Bansal, ED and CIO, Centrum Wealth Management
We are quite sanguine about the markets over the next eight - 10 month time horizon. Elections are a key event to watch out for the markets and we believe that any government which comes at the centre would be hard pressed to continue with the reforms momentum. Moreover, convergence of many positives in the form of improvement in the global growth and expectations on US tapering already built in yields globally, improved domestic GDP numbers, possible interest rate reversal, increased rural consumption and current account deficit coming under control would be positive for the economy and markets.
All in all, the macroeconomic environment is poised for an improvement in 2014 which will have a trickle-down effect on micro numbers and will be beneficial for corporate performance. Our top picks include ICICI Bank, ITC, Lupin, L&T, Eicher Motors
Dinesh Thakkar, CMD, Angel Broking
The benchmark equity indices have made new highs in 2013 and are set for a strong run going into 2014 on the back of supportive global cues and an improvement in domestic fundamentals as our external sector risks have materially subsided and growth has bottomed out.
I believe that food inflation which has been a concern for the inflation trajectory and limited growth-supported measures by policymakers is also likely to ease as vegetable prices moderate in the near-future itself. Going forward I expect overall food inflation to cools off as well owing to better agricultural production.
Markets are also pinning hopes on a strong reform-led government and turnaround in the capex cycle post elections. I believe that the outlook for equity investment is ripe as recovery in the economy and corporate earnings are underway.
Stock picks for 2014: Axis Bank, ICICI Bank, Cipla, United Phosphorus and TCS
Anindya Banerjee, currency analyst, Kotak Securities
Over the medium-term, volatility can rise, as Rupee factors in the effect of withdrawal of liquidity from the US Fed next year and uncertainty over course of RBI’s monetary policy. We expect, demand from importers and oil marketing companies to remain strong closer to 61.00 on spot, which can cap gains beyond 60.50/61.00 levels but at the same time, unless and risk sentiments reverses materially in global financial markets, going for US Dollar beyond 63.50/64.00 appears unlikely
Brotin Banerjee, CEO and MD, Tata Housing
With the economy witnessing a downturn, interest rates and inflation reaching all-time highs, 2013 has been one of the most eventful years for Real Estate in India. While introduction of Real estate regulatory bill and land acquisitions bills in the parliament was positive for the real estate industry, end users sitting on the fence expecting a fall in prices lead to a contraction of demand in the past few quarters. This year Mumbai, Kolkata and other key markets saw less activation from real estate players as delay in approval process impacted project launches.
We would anticipate the real estate sector to grow, albeit at a slightly lower pace, as the demand for housing still appears to exceed supply, and the weakening rupee makes India an attractive real estate investment destination for non-resident Indians. We expect the market to start an upward momentum by end of 2014 and suggest end users and investors to utilise this opportunity to book residential units as these offers would vanish once the economy starts showing signs of recovery.
