Market Triggers

Three key sectors could drive a Nifty Bounce from here…

After the rabid correction in January, the markets seem to be finally returning to a semblance of normalcy. The trigger may have been the slightly dovish language of the US Fed in its recent FOMC analysis. That raises the hope that the Fed may not actually hike rates in March and put it off to the second half. The question is; if the Nifty bounces from here what sectors could be the driving forces to focus on?

Surprising; but yes commodities…

Any idea of buying commodity stocks is likely to be viewed with skepticism. After all, they have been the worst performers in the last 1 year. With global commodity prices back to their 1998 levels when the super-cycle began, the skepticism is valid. But things may be changing, at least for the short to medium term.

Take the case of oil. With oil prices staying below $30/bbl through January, the likes of Goldman have also starting indicating that the worst may be over. Also most analysts are expecting some sharp supply disruptions in the next 1 year which could quickly bridge this demand supply gap. And if, as Russia suggests, Saudi Arabia gets back to regulating supply, then oil prices may actually start moving up. Oil and commodity stocks may be a good driver for these markets at current levels. Apart from the price argument, there is also a dividend yield argument here.

Yes, it could be PSU Banks…

The question is, how much worse could it possibly get for PSU banks. Agreed that their NPAs are a matter of concern and they have entered 2016 with $60 billion worth of NPAs. But that is more than factored in. Most PSU banks have lost anywhere between 60-80% of their market cap and it would be unfair to insist that they could go down further. Most PSU banks are available at under 1 times book and that is attractive, at least for the top-5 PSU banks. What we do expect is some quick action from the government on the NPA and the capital infusion front. The government has to just bite the bullet and pave the road for these PSU banks to grow from here. Actually, they are valuable. They may not get the fancy valuations of private banks in India, but a re-rating would surely be warranted. Just a push from the government is pending.

Let us not forget Pharma…

Most of the frontline pharma companies are once again available at lip-smacking valuations. The hit was more due to US FDA concerns, and that will be addressed. Most large pharma have lost nearly 40-50% of their value and look more aligned to their growth rates. They have been among the worst performing stocks in the last quarter and that is likely to change. Not only will it add a defensive flavor, but will also give growth at a reasonable price! ©

You can ask us your stock related questions with #AskReligareOnMarkets via our Twitter channel @religareonline

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