Market outlook - Geojit BNP Paribas Financial Services

Market outlook

- Portfolio construction in India continues to remain focused on stock selection.

- In the current scenario, four strategies can be followed for rebalancing the portfolio. The strategies are:

1) Take advantage of disproportionate decline in share prices due to regulatory concerns or some sector specific reasons.

2) Embrace some domestic risk in anticipation of slight improvement in policy and implementation environment.

3) Get away from chronically non-performing ideas without visible catalysts.

4) Buy fundamentally good stocks with visible catalyst even at relatively expensive valuations.

- Based on these strategies, Bajaj Auto, SBI and Bharti shall be excluded from the' buying' list.

- Bajaj Auto is facing demand pressure, potential pressure on NPL (non-performing loans) and margins for SBI.

- Bharti is a case where, there is never ending regulatory overhangs.

- BPCL, Petronet, SAIL, PFC and Cummins India are retained in the 'buying' list.

- These stocks are retained because of a combination of positive factors such as likely improvement in fundamentals, near term catalysts and cheap valuations (except Cummins and BPCL). Despite slightly expensive valuation, BPCL is retained in the buying list because the fundamental story of positive surprises on E&P and declining subsidies are likely to last for some more time.

- Underweight on RIL and Infosys. Underweight on RIL due to declining gas reserves and the risk of subsiding margins on refining and petrochemicals.

- For Infosys, its focus on high margin projects is not working. This, coupled with the current weak demand environment made the outlook negative.

- Weight raised on Wipro and Tata Motors.

- It seems that Wipro's near term challenges have already factored in to its stock price. In the medium term, Wipro has significant room for margin expansion because it is improving its cost efficiencies.

- For Tata Motors, the outlook remains positive on JLR volume and it seems that the current price of the stock has factored the margin risk.

- Sector wise, overweight on auto, pharma, E&C and utilities.
- Underweight on consumers, banks and metals.
- Neutral on energy, IT and telecom.

Source : Equity Bulls

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