For the coming year, we believe the markets will have certain headwinds throughout the year. There will be cyclic volatility but this tends to erode around major economic or macro-economic events and a much bigger cycle takes the front seat. In the past, we have seen volatility heightened usually two months prior to election and settling down post-election. Hence, any short-term or medium-term investor should avoid investing with that perspective as volatility may hurt overall returns. The important point here is that post-election, the long-term trend remains intact and the overall bullish nature of the market unfolds itself for long-term investors.
Keeping above analysis in mind, we believe the market is likely to be in consolidation mode going forward with some correction that can bring down the valuations to a cheaper level. Risk aversion will be the flavor.
In this backdrop, we need to understand there are certain factors that are important as a cue to discount the overall movement. The negative factor for the Indian market is the negative global markets which are off their peak and trading at one-year lows. The expanded volatility by 80 percent from the last couple of weeks has already put global sentiments in a negative perception.
The favorable factor this year-end and the coming year is the appreciation in the rupee and crude oil prices. The rupee has appreciated almost 7 percent in the last few weeks while crude has dropped almost 44 percent from its recent peaks which is the most important factor. This will have significant impact on CAD.
Bearing in mind the above perspective, the equation seems to be positive for the long-term, i.e. while in the short-term or medium-term perspective like 3- 5 months, we expect a rise in volatility that can dampen any directional move.
For a short-term perspective, we expect market to be in the range with upside capped at 12,000 while on the downside it has support placed at 9,450. Hence with our analysis, many things are looking to work out in favor of the Indian economy in medium to long-term view.
Any decline from the current levels which is more than 10 percent should be utilised by investors to add quality stocks with growth potential and once the volatility settles down, one should keep investment horizon for a longer-term. As in the long-term, risk-adjusted returns tend to be better. While we do suggest to not be aggressive in the initial quarter of 2019 or the second quarter as well, one should have a systematic approach with overall strategy to be scattered.
Investors for 2019 should understand that any dip is useful when it is more than 10 percent in a secular bullish market. This helps to bring costs lower and pyramid the portfolio for better returns. As far as timing is concerned, post-June we expect smoothness due to easing of volatility and pick-up in the investment cycle. It all comes down to the mandate of people in the Lok Sabha 2019 as well.
The road ahead for Nifty/Sensex in 2019 seems to be accommodating volatility which has been cyclically down for the last couple of years. While volatility has been the curse for 2018 as the year started with its expansion and since then we have seen Nifty volatility expanding in a gradual manner, up 68 percent in the last few weeks. With events ahead of us such as LS 2019, global markets continuing to break important support, we expect headwinds. Though on the other hand, we have crude which is around $42, below $50 mark, which is a boon for the Indian economy. Hence, we will see bulls try to make their way out of it. For Nifty, the range seems to be 12,100 on the upside to 9,400 on the downside. Sensex, on the other hand, may oscillate between 39,800 to 32,300.
10 stock recommendations for 2019
SBI: The stock has shown some strength in the last few quarters while on a long-term chart it is in a broader consolidation range of 330—260. It continues to be a leader in the PSU space and we expect out-performance from this bank in the coming quarters with its growth potential in the last two quarters. We expect it to be a good pick with upside potential of 20 percent, i.e. 354
Yes Bank: The stock has seen its worst correction in the last almost 10 years since the 2008 financial crisis and is hovering at a very important support which is placed at around 150-levels. We expect the stock to be in the bottom in medium-term and showing signs of bottoming out in its pattern. We expect an upside from present levels in stock of around 25 percent, i.e. 225
Vedanta: The stock after a due correction in 2018 has turned flat in a consolidation range. The important support for the stock is around 170–166 levels and with recent consolidation, an upside momentum for medium-term can be seen at target of 240–250.
M&M Fin Services: The stock is in a bullish momentum with its trend primarily intact. A recent dip was seen but it resumed the uptrend and is trading near its all-time highs which is around 500. We expect the trend to continue and the stock to make new highs in 2019 with upside target of 560–570.
Wipro: The stock is performing well since 2017 and is trading near its 2015 highs of 340-levels and given its strength we expect it to continue to be on the uptrend with higher targets of 390.
Motherson Sumi: It has been one of the best value creator in the last 10 years with appreciation of more than 3,800 percent. A recent correction in stocks from all-time highs presents an opportunity for a value-buy at a lower price. We expect it to resume the uptrend in the coming year with strong support at 140-130 levels. An upside towards 210–240 is expected in 2019.
Federal Bank: The stock has ended its corrective pattern at lower levels of 70–75 in this quarter and we believe the primary trend is bullish. We expect the stock to perform better in the mid-cap space and reach higher target of 121.
Dr Reddy's: With expansion in volatility, we expect the pharmaceutical sector to see some out-performance. Dr Reddy's from lower top and lower bottom has turned sideways and closed above its resistance line. The stock is also seeing a breakout from double bottom with targets of 3,200 in coming months.
India Cement: The stock has very important supports placed at lower levels of 75–77 and we expect it to see some short-term up movement from current levels of 93 to higher levels of 125.
Exide Industries: The stock is one of the leaders in the battery space with its outperformance in trend since 2015. An uptrend with positive momentum and a golden cross on charts suggests an uptrend that may remain intact. However, a fall will provide an opportunity to enter higher target of 325 from present levels of 261.
(The writer is CEO, Epic Research. The views and stock recommendations expressed by the author are his own and not that of Firstpost)
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Updated Date: Dec 31, 2018 18:47 PM