The much-awaited event of the first half of 2019 — the general elections — turned out to be favourable for the market, with PM Narendra Modi winning a strong mandate. Politics, however, has now taken a backseat and the focus has shifted to fundamentals amid a weaker backdrop for earnings in general and consumption space in particular.
There has been no respite on the slowdown narrative, and analysts are pointing towards a weak first-quarter earnings season of FY20. However, Motilal Oswal, in its report, said that the 75 basis points cut in repo rate by the RBI since February 2019, the general dovish commentaries by global central banks and the government's initiative to tap the overseas markets to meet part of its borrowing needs should augur well for the interest rate and liquidity environment in India and also strengthen the currency.
The first-quarter earnings are likely to be a repeat of 4QFY19, with financials driving the performance singlehandedly, the report said. "Corporate banks will account for entire growth in the Nifty, but, autos will have another lackluster quarter; IT sector profit growth will come off in this quarter and consumer sector is also expected to report a muted quarter," the brokerage added.
Meanwhile, analysts expect markets to remain volatile, with mid-caps continuing to underperform large-caps. "Our approach to portfolio construction is still driven by earnings visibility and higher defensive exposure, as we expect downside risks for earnings, going ahead," it further said.
With all this in mind, Motilal Oswal lists its top picks in the large-cap and mid-cap segments.
Large-caps include ICICI Bank, SBI, HDFC, Bharti Airtel, L&T, Infosys, Maruti, NTPC, Coal India, and Titan.
mid-caps include Federal Bank, DCB, MMFS, Indian Hotels, NMDC, ABFRL, Zensar, Godrej Agrovet, and Crompton Consumer. Model portfolio by Motilal Oswal in the current scenario: Banks: The brokerage is overweight on corporate banks and remains positive on ICICI Bank and Axis Bank. It replaced Punjab National Bank with Bank of Baroda in its model portfolio as higher provisioning expenses, weak capitalisation levels and ongoing consolidation agenda remain a concern for PNB.
Meanwhile, Bank of Baroda has been reporting a steady operating performance, and significant cleansing of Dena Bank and Vijaya Bank’s balance sheet ahead of merger will facilitate a strong earnings recovery.
In mid-caps, they are retaining bullish calls on Federal Bank and RBL.
NBFCs: The brokerage has raised their weights in HDFC as the market share shift in both retail and corporate business will be towards well-established players in this tough operating environment.
It also replaced Shriram Transport Finance with M&M Financial Services as AUM growth in the latter is expected to be 15-16 percent despite moderation in OEM sales.
Consumer: It retains HUL, Marico, and Titan in model portfolio and replaced Britannia with ITC. According to the brokerage, budget overhang for ITC is behind and valuations at a 45 percent discount to sector offer a relative margin of safety. IT and Telecom: In IT, it maintains its positions in Infosys and Tech Mahindra. For telecom, it raised its weightage in Bharti Airtel. Metal and Utilities: It remains bullish on Hindalco and increased weightage of NMDC to the portfolio. Commissioning of NMDC’s steel plant would be valuable given low-cost iron ore, the economy of scale and high productivity, the brokerage said, adding that potential renewal of Donimalai mine lease and higher iron prices will provide upside. MidCap: The brokerage added ABFRL to its model portfolio as it offers strong growth potential in innerwear segment, the accelerated pace of store adds under Pantaloons and the renewed investment focus to scale up the Lifestyle segment are likely to drive healthy 13 percent revenue.
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