Broker’s Blurb: INDIA: A BRIGHT SPOT IN AN OTHERWISE DARK WORLD

The Indian market has soared to fresh highs. The year 2015 will continue to be a great year for individual stock pickers, irrespective of whether the index delivers single-digit or double-digit returns, Amar Ambani, Head of Research, IIFLThe Indian stock market witnessed one of its finest years in 2014. Having witnessed a ~30 per cent rise for the Nifty and Sensex in the previous year, the predictions for 2015 are markedly divided in argument and logic. Some market-watchers feel 2015 may bring about only a single digit upsurge while some others are more hopeful in their analysis. The contrasting forecasts are hardly a matter of concern, for this is the time to gainfully focus on individual stocks rather than pin hopes on the overall market or fret and fume over its likely direction.

The indices have already hit fresh highs as the drumbeats on reforms get louder. There are many individual stocks with the power to yield 30 per cent returns and hence the hunt should be for such potential winners. In the worst case scenario, we may have to bear with a market slowdown phase that may extend to the immediate future but a medium to long-time frame of four to five years looks remarkably productive for the market. There are a few factors that more than support this view.

For one, the political scenario is at its very best for the country and there’s absolutely no reason to disbelieve the plum prospects waiting in the wings. How many times has India enjoyed the luxury of a historic mandate with a single party in majority, a workaholic prime minister and sweeping nationwide power acquisitions for the ruling party in state after state?

In all probability, 2015 would be a year of meaningful political action. The government seems visibly determined to deliver its promise and the forthcoming budget would be the first tangible proof of its positive intent to usher in a reform‐led economic growth - precisely why we have every reason to keep the faith alive and kicking.

At 4 to 4.5 per cent, our fiscal deficit is placed at one of its lowest levels in the last three decades. The government can clearly afford to increase its Plan expenditure spend as also stagger disinvestment to get the right price. The crude oil status is a big positive and will undoubtedly help keep in check the usual suspects like current account deficit and inflation. Our position on the world map couldn’t have been better. In fact, it won’t be inappropriate to call India one of the brightest spot in an otherwise dark world.

Once the rupee stabilises, we strongly believe we should see a remarkable FII inflow to the tune of USD 10 billion plus over the next six to eight months. Notwithstanding the possibility of an US Fed interest rate surge, there’s enough liquidity in global markets to see them through with key stakeholders Japan and Europe on a predominant easing spree. Interest rates too will begin to drop sooner than most of us expect at this point.

On the domestic interest rate front, RBI Governor Raghuram Rajan, consistent with his image of surprising the market, cut the repo rate by 25 bps on January 15 when the street was expecting it to come through in the February policy meeting, at the earliest. This decision is a big sentiment booster for the business community and the stock market. Having announced a cut before the policy review, we don’t think that the RBI will cut the repo rate again at the monetary policy meeting scheduled for February 2. The governor would now wait for the Union Budget to adhere to fiscal consolidation before contemplating further action. Additional rate cuts to the tune of 75 bps are possible in the calendar year.

As the economic recovery is taking shape, corporate earnings should gather momentum in the coming quarters on the back of the low base of the last three years. With a gradual demand pick-up and the benefit triggers of operating and financial leverage, the corporate scorecard is likely to rise by at least 17‐18 per cent in each of the next two years. Yes, corrections would indeed remain an integral feature of the market voyage, as they have always been, but more importantly, the overall trend is only pointing to an upward march. Never mind the ensuing dips; the market is well poised to record new highs in the years to come.

Far from indecision, this is the time ripe for positive action; this is the time to correct the reactionary sentiment of panic and perplexity that gains ground on every correction; this is the time to increase our hand‐picked exposure to that phenomenal investment avenue called equities.

IIFL Picks for 2015

IIFL analysts have picked six mid-cap gems, which we believe are likely to become major wealth creators in 2015. The stocks are Bajaj Corp, CanFin, Granules India, Indian Hume Pipe, MM Forgings and Symphony.