Equities may fare better in 2017: Analysts

December 31, 2016 10:04 pm | Updated 11:28 pm IST - MUMBAI

Some analysts opine that a stock-specific approach will be better than betting on sectors.

Some analysts opine that a stock-specific approach will be better than betting on sectors.

The year 2016 was a roller coaster ride for the Indian equity market which made significant gains in the first half followed by loses in the later months.

Foreign investors also reversed their stance, pressing the sell button as the year came to an end.

The benchmark Sensex clocked monthly gains in six consecutive months starting March till August. Thereafter, it has been mostly a downward slide barring October when it managed to post a negligible gain of 64 points.

Foreign investors, meanwhile, bought Indian shares worth nearly $10 billion between March and September and since then have been net sellers at almost $4.5 billion. India – just like most emerging markets – saw a massive pull out by overseas funds on the back of global factors like U.S. presidential election, Brexit and Fed rate hike.

Demonetisation move

Incidentally, the negative sentiment compounded in the Indian context as the government announced its demonetisation move in November, which led to investors turning bearish on banks and other consumer-oriented sectors.

In 2016, the 30-share Sensex gained 509 points or 1.95 per cent to 26,626.46. It had touched a 52-week high of 29,077.28 on September 8.

Most market participants believe that 2017 would certainly be better than 2016 but added a word of caution to hedge their predictions. A lot depends on the policy stance of the government, they said.

Swiss financial major UBS is of the view that if there is no significant change on the policy front, then Nifty could test a base case level of 9,400. Its upside and downside levels for the Nifty are 10,600 and 7,300, respectively. There is an unattractive risk-reward in the near term but a more balanced skew for Nifty from a one-year perspective, according to UBS.

The broader 50-share Nifty gained 239 points or 3.01 per cent in 2016 to end the year at 8,185.80.

Morgan Stanley, in a recent note, highlighted the fact that the domestic event of demonetisation combined with the overall fall in the emerging market equities had caused Indian shares to retrace about 10 per cent from the recent highs.

“Even as long bond yields are off April 2009 lows of 6.2 per cent, we think the relative valuations of equities to bonds are the best since mid-2013. We think this merits an asset allocation shift in favour of equities,” according to the note.

The global financial major expects Sensex earnings growth of 2.5 per cent and 18 per cent year-on-year in 2016-17 and 2017-18, respectively. It has a base case target of 30,000 for the Sensex with a bull case target of 39,000 and a bear case target of 24,000.

Stock-specific approach

Some of the senior market analysts believe that given the scenario, a stock-specific approach would be better than betting on sectors.

“One thing is for sure that in 2017, Indians would buy more equities as both gold and real estate are not looking too great,” Raamdeo Agrawal, co-founder and joint managing director, Motilal Oswal Financial Services.

The top picks of the leading domestic brokerage are Tata Motors, ICICI Bank, APL Apollo Tubes, Sterling Tools and Canfin Homes.

“It is difficult to predict the market right now as one needs to wait and watch how the government works in the post-demonetisation era. Valuations are reasonable but earnings have stagnated. Investors should look at stock-specific approach. I would peg the Nifty range between 7,000 and 9,000 for the year,” Mr. Agrawal said.

Earnings have been a cause for concern for many in the market. Prakash Kacholia, Managing Director, Emkay Global Financial Services said the third and fourth quarter results could stay “timid.”

“However, return from equities is expected to surprise on the positive side over a 1-year period on the back of country’s strong economic fundamentals. Sectors like auto, pharma and power Utilities are the ones to watch out for in 2017,” Mr. Kacholia said.

Global events

The start of the new year would see important domestic and global events that would impact the equity market as well. The global economic and trade policies of president-elect Donald Trump will be keenly watched after he takes oath as U.S. President on January 20.

On the domestic front, the government will present the Union Budget on February 1 and there are speculations that it could set the tone for some sweeping reforms especially on the taxation front.

Amongst all the uncertainties, a unanimous view that seems to be emerging on the Street is that 2017 would see consumption as one of the biggest themes for investing on the back of demonetisation and may be, some populist tax reforms to go with it.

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