INSUBCONTINENT EXCLUSIVE:
Selective buying in heavyweight stocks took the benchmark BSE Sensex to an all-time high level last week.
However, most of the stocks in the
30-share index are still giving negative returns on a year-to-date basis
The selling pressure has been severe in midcap and smallcap stocks
Headwinds in the form of weak emerging markets, rising rates, higher crude oil prices, election year worries and relative rich valuations
have mainly impacted sentiments on Dalal Street this year
Global brokerage Morgan Stanley, which estimates Sensex to hit 36,000 by June next year in base case, believes the largecap index has
at 44,000 and in bear case at 26,500
Factors favouring the marketThe global brokerage highlighted the factors that are looking favourable for the market
A bullish steepening of yield curve, which is at a post-2010 high, correlates positively with stocks and low and falling beta, which augur
prefers largecaps to midcaps and like sectors, including banks (private corporate and retail), discretionary consumption, industrials and
domestic materials, while avoiding healthcare, staples, utilities, global materials and energy.
The brokerage further says crude oil prices
remain a key risk to equities given its ability to cause pain to fiscal deficit and, therefore, growth
It sees strong growth in 2018 and 2019 driven by consumption, exports, government spending and a nascent recovery in private
capex.
ValuationsMorgan Stanley said equities do not look compelling compared with long bonds
focusBajaj Auto, Mahindra Mahindra, Maruti Suzuki, Zee Entertainment, Titan, ITC, ITC, RIL, Bharat Financial, HDFC Bank, ICICI Bank,
Factors against domestic equitiesThe global brokerage said a likely rise in crude oil prices can put pressure on growth, while upward
pressure on inflation from food price hikes indicate that more rate hikes are coming
The election cycle, which brings its own set of uncertainties, relatively rich midcap valuations (even after the recent drawdown) and high
equity valuations relative to bonds, which indicates that the market is pricing in some part of the coming growth recovery, are some of the
factors looking against Indian equities.
