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Brokerages Bullish On Mid Caps, Banks As BJP’s Modi Set For Another Term

Here’s what brokerages have to say a day after the results of the general election.

People look toward a screen and an electronic ticker board outside the Bombay Stock Exchange (BSE) building in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)
People look toward a screen and an electronic ticker board outside the Bombay Stock Exchange (BSE) building in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

Narendra Modi-led Bharatiya Janata Party is set to come back to power for another five years with a bigger mandate than last time. Now that the election uncertainty is out of the way, brokerages expect monetary policy to be the next market-moving event, followed by the budget.

CLSA and Macquarie expect mid-cap stocks to come back into favour while nearly all of them are bullish on banks—both private and public. The consumption sector, on the other hand, is low on their list of favourites.

Here’s what brokerages had to say, a day after the results of general election 2019:

CLSA

  • Absolute majority for BJP would reduce the need for competitive populism
  • Mid-caps should be back in favour as domestic flows are expected to improve
  • Potential policy rate cut and market-friendly ministerial council would be next trigger
  • U.S.-China trade war and rich valuations to cap market returns to single digit
  • Top large-cap picks: ICICI Bank Ltd., Axis Bank Ltd., IndusInd Bank Ltd., HDFC Ltd., Ultratech Cement Ltd., Reliance Industries Ltd., Bharti Airtel Ltd., ONGC Ltd., and NTPC Ltd.
  • Top mid-caps: Godrej Properties Ltd., Sobha Ltd., Ramco Systems Ltd., Lemon Tree Hotels Ltd., Havells India Ltd., Astral Poly Technik Ltd., Sadbhav Engineering Ltd., and Dr. Lal Pathlabs Ltd.
  • Underweight on IT, Staples, Pharma, metals, two-wheeler

Macquarie

  • Verdict reduces risk of populism significantly, but unlikely to see major departure from existing policies
  • India stands to gain flows with global trade worries
  • Focus would move monetary policy to the front in the near term followed by budget
  • Recommend shifting from large-caps to high beta domestic sectors and mid-caps
  • Positive on private banks, industrials, real estate; negative on consumption and non-banking financial companies

HSBC

  • Near-term growth could inch up as election uncertainties fade
  • But rise in potential growth to depend on whether reforms to augment capital and labour are undertaken
  • Expect short-term gains on currency but long-term strains
  • On rates, we remain cautious on duration
  • Government could focus on fiscal reforms, raising the investment cycle, continuing with banking sector clean-up
  • Government should focus on easing land acquisition, streamlining labour regulation and continuing efforts to raise rural income

UBS

  • Policy choice and reform narrative key to markets moving forward
  • Stimulating growth faces fiscal challenges; public capex may disappoint ahead
  • Base case is Nifty at 12,000 by December 2019; Upside/downside scenarios are 13,000/10,500
  • Overweight on private banks, property, oil and gas, consumer discretionary and four-wheeler automobiles
  • Most preferred include Asian Paints Ltd., Axis Bank Ltd., BPCL Ltd., Britannia Industries Ltd., Cipla Ltd., Federal Bank Ltd., Godrej Properties Ltd., ICICI Bank, Infosys Ltd., ITC Ltd., Maruti Suzuki India Ltd., NTPC Ltd., Petronet LNG Ltd., Reliance Industries, State Bank of India

Nomura

  • Expect policy continuity due to a clear mandate
  • Raise Nifty 50 target to 12,250 from earlier 12,170 for December 2019
  • Top picks are ICICI Bank, Axis Bank, Larsen & Toubro, Container Corporation of India and SBI Life
  • Upgrade oil marketing companies to overweight and remain positive on gas; downgrade autos to neutral

Credit Suisse

  • Expect the government to prioritise judicial reforms and continue infra spending
  • NBFC stress and global risks should now be front-and-centre
  • Expect banks to do well, given the expectation of strong earnings growth in FY20
  • Bullish on banks like HDFC Bank, ICICI Bank, Axis Bank, SBI
  • Utilities and industrials like L&T Ltd. and NTPC should benefit on possible interest rate cuts
  • Stay underweight on consumption stocks like HUL Ltd., Maruti and Havells India

Deutsche Bank

  • With the NDA re-elected, sentiment revival to lead fundamental improvement
  • Expecting domestic earnings growth drag to fade
  • Preferred stocks include ICICI Bank, SBI, ICICI Prudential Life Insurance Ltd., SBI Life, L&T Finance Ltd,, Hero MotoCorp Ltd., Mahindra & Mahindra Ltd., Ultratech Cement and Petronet LNG

Goldman Sachs

  • Decisive NDA mandate bodes well for policy continuity, reforms, demand recovery
  • Nifty 50 out-performance to continue; stay overweight on India with Nifty 50 target of 12,500
  • Continue to like banks (both private and public) and domestic cyclicals over defensives and exporters
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