Market View : Be CAUTIOUSLY Optimistic
• We are certainly not low in Price to Earning multiples if compared to 2008 but following PE multiples is not prudent right now. We are on reasonably low valuations comparing Market cap to GDP if compared to 2008. There are certain important factors in valuations that one needs to understand ( like certainty of cashflows, growth, interest rates ). In 2014, FMCG was at 30-40 PE and interest rates were at 8-9% then. In 2020 as interest rates are at 3-4%, FMCG companies are valued at 50-60 PE.
• If you are underweighting on equities, now is the time to invest. You can also take a tactical call of buying equities for 2-3 years. We can see a very narrow market and further consolidation across sectors. Strong would become stronger.
• Underperform on Financials, Airlines, Hotels and Consumer Discretionary.
• Outperform potential in Telecom, Pharma, Auto.
• There is strong case for re rating in pharma stocks.
• Last mile logistics would play good for two-wheeler auto stocks.
• Five Key positives :
1) Cost of capital has gone down.
2) Key reforms in factors of production i.e. Land, Labour and Law are work in progress.
3) Coherent thinking by the Government by driving growth via Manufacturing in India.
4) Covid could be a blessing in disguise as we’ve got 2% GDP fiscal package by the Govt.
5) Modi is friends with Trump, Putin and Middle East, we might see higher FDI inflows in the coming years. Additionally, states like UP and MP are taking major reform steps on their own
• Dismantling of Agricultural Produce Marketing Committee is big agricultural sector reform and is good for for rural sector
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