Muhurat Picks 2016-17 By ICICI-Direct

The Indian equity rally has been driven by global fund flows from low yield (and negative in some cases) developed economies, which are finding India an attractive investment destination with relatively stable and stronger growth prospects. Furthermore, lack of performance from the other competing asset classes has also meant higher risk appetite Let me begin by wishing you all a Happy Diwali and Prosperous New Year ! and preference towards equities. In such a situation of liquidity benefiting all stocks, growth needs to be the key differentiator. Hence, we have cherry picked companies that are likely to exhibit a strong earnings growth trajectory coupled with efficient allocation of capital.

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.

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.