Going forward, given the low base, stable commodity prices and revival of consumption led demand, we expect strong double-digit earnings recovery over FY18-19E. We assign a multiple of 16x on FY18E & FY19 average EPS (average of Rs. 1750 and Rs 2098) to arrive at a fair value of 30,800 as our CY17/FY18E target for the Sensex and 9,300 levels for Nifty50.
On the flows front, channelisation of financial savings has resulted in strong domestic flows into equities. Strong domestic flows, therefore, is likely to aid Indian equities to withstand any volatility in FII flows.
Multibagger stock selection requires an investment horizon of 3-5 years, which is a challenging proposition. However, as a part of midcap and small-cap offering, we have a product line named “Nano Nivesh” wherein we recommend midcap and small cap stocks companies with good and scalable business models, dependable management and sound financials.
Our earlier recommendation such as Atul Auto, Siyaram Silk, Wim Plast, D-link, Apcotex Industries, CCL Products have been multi-baggers turning 2-9x over 4-5 years.
The risks include a revival of competing for asset classes such as real estate, delay in earnings recovery and commodities volatility. If there is a sharp increase in commodity prices then we can underperform compared to other markets.
We expect broader markets to keep performing given their superior growth trajectory which would keep their valuations at elevated levels. Therefore, under the scenario of ample domestic and global liquidity, the pockets depicting superior growth would keep attracting interest.
Equities remain one of the attractive destinations with better growth outlook than its major competing asset classes such as fixed income, real estate, gold etc.
We note that despite the attractiveness, there remains a huge scope of higher deployment of domestic savings into the equities from current levels of merely 1 per cent of GDP.
We recommend investing in quality names that have reasonable growth visibility coupled with strong balance sheets. We advise a staggered buying approach to build a long term portfolio.
Investment & trading in securities market is always subjected to market risks, past performance is not a guarantee of future performance.
CapitalStars Investment Adviser: SEBI Registration Number: INA000001647
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