India in bull market, cyclicals to outperform: Dron Capital

The record-setting rally in Indian stock markets seems to have entered into a consolidation phase with the Nifty index struggling around the 6,700 levels. The modest corrections in markets have come on the back of a bullish March, a month in which equities posted their biggest monthly-gain since October 2013. There are some concerns that Indian markets have run-up sharply and there are no triggers to take the market higher.
However, Pathik Gandotra of Dron Capital told that Indian markets are in a bullish phase and set for further gains.
“Indian markets are rallying on the back of expectation of a reform oriented stable government at the center in the forthcoming general elections. A stable government at the center will lead to economic revival in the country by clearing stalled projects,” he said.
The current rally, although little fast, is not surprising…If election results are favourable then we may see a 1,000 points upside in Nifty by this year end,” he added.
Mr. Gandotra says credit is also due to the Manmohan Singh-led UPA government for the active role it has played over the last 18 months, especially in clearing major policy bottlenecks. The forthcoming government will get benefit of these measures, he added.
India and Indonesia are to witness a regime change, so a major portion of the emerging market asset pool is chasing these two countries, he said, adding that India and Indonesia have a better outlook among emerging markets.
“I don’t see any reason why the foreign institutional buying will stop in India” he said.
Stock picks:
Buy cyclical stocks with high ROC (Return on Capital). These stocks will come back as economic cycle will revive. IT and pharma companies are giving an earnings growth of 14-15 per cent, but as and when economy recovers, these cyclical stocks will give a earning growth of 15-20 per cent.
Private Banks, as an asset class, looks very attractive. Private Banks have a structural story of market share gain and these companies have a lower than average valuation.
Smaller portion of portfolio should be allocated to high risk-leveraged companies like real estate and infrastructure, especially large caps in these sectors.
Positive on consumer discretionary on the back of economic revival, but not very positive on PSU banks, which are losing market share and also losing competitive advantage to private banks as wall. Asset quality worries remain for PSU (Public Sector Banks).