If one sees continued benign data on the inflation front, one can hope for increased liquidity from RBI, going forward, to support credit growth
An aggressive person can invest 70% in equities, 20% in debt, and 10% in gold, whereas a person with a moderate risk appetite can invest 50% in equities, 35% in debt, and 15% in gold, Abhimanyu Sofat, Head of Research, IIFL Securities said in an interview.
The reduction in inflation forecast to 2.7-3.2% from 3.9-4.5% should have ideally lead to lesser hawkish monetary policy. As the shift in policy stance was done in the last meeting, it was difficult for RBI to reverse the same.
If one sees continued benign data on the inflation front, one can hope for increased liquidity from RBI, going forward, to support credit growth.
We believe even if the RBI does not act, bond yield will come down if the inflation is benign as aggregate demand and supply are more relevant than RBI rate. As we have seen earlier as well that despite RBI reducing rates in 2015-17, the transmission of rates did not happen.
Do you think the pain in the mid and smallcaps is here to stay in 2019 as well?
Since small and midcaps are down 35 percent (Nifty Smallcap 50) and 13 percent (Nifty Midcap 50), respectively, so far in 2018, there could arise an opportunity where you find good quality stocks at attractive valuations in these segments but avoid averaging stocks whose fundamentals have deteriorated significantly.
We are focused on stories, which are benefiting from crude price fall. Also, we are seeing some improvement in liquidity for NBFCs which will help in a rebound in credit growth helping these companies grow.
After a muted 2018, what are your predictions for 2019?
The market has more or less disappointed investors in 2018. The Nifty50 has merely given 4 percent YTD return till date. The rising crude oil prices, depreciating rupee and international trade tensions were some factors that affected the market in 2018.
However, in 2019, because of lower crude prices many macro challenges like currency depreciation, increasing CAD and inflation are getting resolved.
2019 strategy: Top five fundamental safe stocks which are good buys at current levels for a holding period of 1 year?
We expect the following stocks to perform well in the coming year (2019):
Indian Energy Exchange (IEX): To benefit from growing volumes in the short-term electricity market.
L&T Infotech (LTI): Strong client mining and deal win momentum would lead to the sustenance of top-tier revenue and earnings growth.
Axis Bank: To benefit from robust NII growth and a decline in loan loss provisioning.
Larsen & Toubro (L&T): Improving the capex cycle and government thrust on infrastructure spending will be the key triggers.
Bajaj Finserv: To benefit from a higher share under the motor segment (general insurance), focus on customer retention, and increasing the absolute value of new business (life insurance).
Which sectors are likely to hog the limelight in the coming year?
We are positive on capital goods and IT sectors. While capital goods stocks have not participated much in the recent rally, growth momentum is likely to be decent going forward considering the impact of the upcoming elections and on the assumption that private capex will make a return.
In the IT space, improving demand in America led by a pick-up in retail and the stability in the BFSI segment will support growth. The strong demand for digital solutions is also positive for the IT sector.
Do you think rupee will continue to appreciate in the near term?
We have already seen some recovery in the rupee over the past one month, primarily on account of the decline in crude oil prices. It will depend on the future direction of crude oil prices and the trend of foreign flows.
Also, the headwinds with regard to Brexit deal and trade wars will ensure that the volatility may rise, going forward.
Any sector(s) which you think could turn out to be dark horse in 2019?
The capital goods sector could be a dark horse in 2019 due to the possible easing of pricing pressure due to the return of private capex and pick up in order execution.
What should be the ideal strategy for investors for the next one year?
At any given time, one should invest based on their risk profile. There is no hard and fast rule; an aggressive person can invest 70% in equities, 20% debt, and 10% in gold, whereas a person with a moderate risk appetite can invest 50% in equities, 35% in debt, and 15% in gold.
A conservative investor should invest 50% in debt, 20% gold, and the rest in equities. However, from a tactical allocation perspective, one can increase weight in equities with a bias toward smaller & mid-cap companies.