Since general election will be almost mid-way in the year, I expect flattish return from largecaps in 2019, Kunj 67317566 67284964 67299537 Bansal, Partner & CIO, Sarthi Group, tells ET Now.Edited excerpts: 2017 was all about playing it safe to be able to brave the volatility that the market saw across the globe. Is it time to make that switch in 2019 to mid and smallcaps or is it safer to stick with largecaps?Despite repeatedly going wrong, we have to keep analysing and thinking what are likely to be the outcomes going forward. In 2018, all the largecap indices have largely been flat and let's see what happens today but it will be 3-4% gain. Within that remains hidden the fact that the midcap and smallcaps have sharply underperformed. Also, within the largecaps, it does not show the sharp volatility that we had almost four times in 2018. Beween January 1, 2018 to February 1, 2018, the market went up sharply and then it came down. In the mid-year, June-July-August, it sharply went up and then within two months it crashed 15% from 11,700 to 10,000. In the last two months, we have seen a sharp 10% recovery, ending the year at a largely flat movement 4-5%. Going forward, the general election is going to be one of biggest events of 2019. There is no negative surprise. If I keep that event in mind and the fact that it will be almost mid-way in the year, I expect flattish return from largecaps in 2019. Within that, we should see some earnings pickup selectively and the valuations on a relative basis. India has lost the glory of being a cheap or a value market three-four years ago or maybe even earlier. Even today, after flat movement of the market with 14% midcap correction, 24% small cap correction, I do not find value in the Indian market. So coming back within small and midcaps with earnings picking up relatively and relative valuation being offered to us, the outperformance is certainly expected from the mid and smallcaps compared to largecaps in 2019.This year has been fairly choppy for a lot of the infra plays. What happens in this election year? Could we see some sort of an incremental change in the fundamentals or fortunes of the infrastructure/real estate companies?Last three-four years has seen quite a surprising underperformance from the infrastructure space. There has been significant government focus and money invested in roads and highways. There was a surprising underperformance because a lot of money was invested largely by the government in the public projects. Of course, the private sector investment has been missing. The underperformance probably is because of the individual company factors which have affected almost all the companies in some or the other way. Going forward, this is a sector where it is very difficult to take a call in a general election year. We have done a lot of data digging and analysing specifically the election years and within that also, those election years where we will see government changes. Major changes take place in investment-oriented sectors like infrastructure, roads, highways, power, oil and gas, telecom, etc. We will soon have clarity on whether the current ruling coalition will continue to lead us for the next five years or if there will be a change. I do not think I would like to take a call for the next six months on the investment oriented sectors on the infrastructure sectors. Where I can take a call and which again got proven by the data digging is that the broader consumption space does not get affected by the government changes. Consumption will get affected by rising living standards, increasing awareness of the people, increasing hygiene level and increasing digital changes. Those are the spaces wherein the government change does not have any say. If I have to take a bet in this year based on the elections, despite the valuations not being attractive for the good quality fundamental companies showing reasonable growth, my bet will be to take on the consumption sector and wait till the election results before betting on the investment sectors.When will we see a meaningful turnaround in the auto and two-wheeler sales?I am sure you mean that in terms of volume growth returning to historical highs of more than 10%. There are two-three things we have to keep in mind. India is an under-penetrated market when it comes to two-wheelers. Those are the years in which we saw the growth rates in the beginning of about 25-30% slowly falling down to 20s and then to 15, 10 and now come to single digits or to less than 10% here or there. Within that, there have been effects of factors like demonetisation and GST. In fact, last few months have really been challenging for the automobile sector because of the insurance cost, fuel prices going up and then because of the financing options either not being available or continuing to go up. The new normal going forward should be around 10% and that is what should be the expectation. If we do around 10% odd or so at the industry level, it should be a decent expectation and that is what we should call a decent performance from the automobile space. We are already there on an industry aggregate level. After the effects of last two years, major macroeconomic and sector specific events having been taken into account, we should start seeing the 10% kind of new normal growth rate in the two-wheelers. Within that, the question comes whether that will result into stocks outperformance or not. It is a challenging question because the valuations there are again not really that comfortable which is what one would like to take. Now does it mean that one should not participate in the India equity story or specifically in the automobile or the two wheeler story? I do not think one can take a call because India is continuously being governed or driven by the increasing equity cult which means that the increasing equity inflows are adding fuel to the increasing new normal on valuations. With the kind of good managements that the companies have within two-wheeler space, one has to take a call and one cannot stay back. Which are the sectors that are closely linked with crude oil prices that could benefit from crude price movement, consumption or even correction with some of the OMCs that have been in focus of late?I do not think I will have anything new or unique to add as an answer to this question. We all know the clear beneficiaries of the oil price reduction are paints companies and we have already seen their prices and as a result valuation sharply moving up in last two months after the sharp correction that we had in October end. So that is one straight beneficiary. Second, some of the chemical companies will be beneficiaries. That can be extended to all the plastic processors, plastic companies that are clear beneficiaries of this whole trade on the oil that has been there. Further, the third or the fourth level derivatives will be the very specific specialised chemicals, specialised perfumes, specialised ingredient suppliers to a lot of automobiles, tyre manufacturers, food product manufacturers and pharma manufacturers.Those are very small sub-segments of the beneficiaries of these that will be there. Is there an investment opportunity there? At an expensive valuation it is still there because the large part of it belongs to consumption where we have been seeing growth and one cannot stay away from it. Specifically for oil marketing companies (OMCs), I do not understand that call from an investment point of view. The whole sector is a traders' delight because instead of being driven by the oil prices rise or fall, these companies get driven by market sentiments, by government action.
from Economic Times http://bit.ly/2CHx1eU
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