Expectations are building up that the budget will be very crucial for the market providing more impetus to investments. The intention will be to bring out the economy from slowdown. Budget may consider policy changes, increasing business liberty and increasing cash in the hands of households through tax cuts. Market also expects tax incentives for equity market with reduction in long-term capital gain tax and others. Sector specific incentives and reforms may be provided to key areas like NBFC, realty, infrastructure and auto.
FD rates are lowering down which will attract more investment in other forms of assets like equities and bond. We should anticipate more investment from domestic investors in CY2020. Inflows from FPIs are also expected to be higher since strength of US Dollar can weaken due to flat Fed rate and better prospects in emerging economies resulting in reduction of bond yield (due to drop in risk). This will trigger risk-on strategy for foreign investors towards Emerging Markets. Further, US-China and Brexit deal will lower the overall risk in the global market which is positive for Emerging Markets like India. For a moderate risk-taking investor, we advise a mix of 60 to 65 percent in equity while 25 to 30 percent in bonds and 15 to 10 percent in gold. In the coming years we feel that the risk-appetite of global & domestic market is going to improve which will provide above normal gains in the next two- three years, we advise higher investment in equity of quality large and mid caps followed by mutual fund debt schemes.
The ongoing risk in the market is the premium valuation which could impact the performance in short to medium-term of pricey valued stocks & sectors. Fiscal deficit is weak and can be a catalyst for more pain in the future if government’s cash flow deteriorates. The other issue is if the world trade deal & government’s support does not fix the slowing economy and increase the geo-political risk. We had a one-year target of 12,600 on Nifty 50 post the Q2 result, which we are maintaining today with a marginal upside risk to Q3 result expectations & actual outcome. We also visualize more actions outside the main indices in the coming years.
The main indices are at all-time-high but the broad market and economy is at stagnation. In the next two years we can anticipate a better economy which will benefit and widen the equity market from this skewed market set of few stocks and sectors. Government’s policy is becoming more business friendly supported by stimulus and tax benefits. The risk-taking ability will increase in domestic market and global headwinds will ease post the trade deals (US-China) and Brexit. We believe that this is a good time to invest in Cyclical stocks & sectors like Metals, Energy, Capital Goods and Industrials. It is also advisable to shift your holding from highly priced stocks to value ideas for better gains in the future. In the last two years the only performers were high-quality stocks, which have high valuations which is not sustainable in the long-term. We also suggest higher investment in banking, chemical, value stocks and quality Mid-Small caps.
