Multi-year break-out for stocks
As we step into Samvat 2073, India is breaking out of its ‘soft’ ways, whether it is in geo-politics, economics or governance. This transformation will become increasingly visible in the next few years but we are happy to note that some changes have already taken root. Businesses will no longer live in cosy shelters created by policy, inheritance or lack of choice for consumers. Though we may have many miles to cover but we are certainly on the path where merit will be eventually acknowledged as a crucial component for success. Diligent and capable corporates in growth sectors are positioned for a multi-year breakout. Investors would do well to identify them early, across sectors and sizes.
Meanwhile, the world is in turmoil. From China to Europe and Brazil to the Middle East, every country is facing political, demographic and financial system issues while being under the climate of a macro slowdown. To deal with such a situation, central banks are printing large sums of money and distributing it to the public to stimulate economy, but the results are not encouraging. Instead, falling (and indeed negative) yields on bonds are creating unsustainable asset bubbles. Real and sustainable growth seems elusive almost everywhere, except perhaps in India today!
Indian economy is the best in the World for investment
We are possibly the only large economy equipped with a vision and the necessary tools to improve sustainability in all aspects: demographics, consumption, infrastructure, human development, urbanisation, energy intensity, political evolution, governance and policy. Even with the backdrop of a volatile market, there is little doubt that foreign investors see India favourably. India will continue to attract foreign capital inflows, trading interest, political alignment and strategic friendship from diverse blocs of countries globally. (HDFC Sec)
Sensex valuations are reasonable
In terms of valuations, the Sensex, at current levels, is trading at ~15x FY18E EPS. One should also note that the domestic scenario is currently much better than what it was previously. In terms of early indicators, healthy auto volume growth (~14% YoY) and decent cement volume growth (~4.9% YoY coupled with firm pricing) in Q2FY17E are some visible signs of a strengthening domestic economy. The consumption leg of the economy continues to find favour with catalysts such as good monsoons, OROP and Seventh Pay Commission implementation.
Sensex target is 31,000 and Nifty target is 9,400 (one year)
Going ahead, with commodities showing early signs of stabilising, we expect the Sensex EPS to grow 16.4% YoY to | 1600 in FY17E and then witness growth of 17.5% YoY in FY18E to | 1880. We have a one year forward target of 31000 for the Sensex and 9400 for the Nifty. (ICICI-Direct)
Low bond yield, boon for economy
The previous low yield regime (2002-04), led to a GDP growth of by 8-9%. This sparked a strong pick-up in Sensex earnings and a multiyear bull rally in stock markets from 2002 to 2007. We believe that the Indian economy has gathered enough momentum for growth with lower inflation and interest rates. With food inflation expected to cool down further, we believe that more rate cuts will be a reality going forward. In-line with the earlier instance of low yield, we opine that this regime is expected to show a strong growth in economy and equity markets.
Consumption remains the strong theme
India’s consumption story remains intact and there is ample scope of growth going forward. Due to normal monsoon this year, the rural consumption is expected to improve in near term, which will be beneficial to overall growth of the economy. As pointers, this consumption is already reflected in retail loans, vehicle sales, etc.
This strong momentum in consumption is expected to translate in higher corporate earnings, which had remained weak in the last two years. (Angel Broking)
Best stocks to buy for 2017
It is with this vision that we have handpicked investment ideas for you. Every one of these stocks is a good Indian blend of managerial capability, strategic intent and growth opportunities. This Diwali (the festival of lights), we have humbly put together investment ideas that you may be happy (and proud) to hold till the next one!