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Nifty could end FY19 at 11,500; these 5 stocks can give up to 30% return.
Both the sharp fall in Feb-March and then this recent pullback is closely related to how bond yield has moved. When 10-year bond yield rose above 7.4 percent and started inching towards traditional psychological level of high interest rate of 10 percent, the sell off began in Indian equities.
Surely, the fall was aggravated due to disappointment from budget, rising rates in US (inching closer to its psychological level of 3 percent) and trade war lately. But Nifty is showing strength again as rates have cooled off. 10-Year bond yield has come down to 7.2 percent after making high of 7.78 percent on 6th March
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Interestingly while on margin, macro on external front has deteriorated recently but Rupee has behaved strong. 2017 was an exceptional year in terms of rising equity market across globe in a multiyear low volatility environment. In 2018 this has changed and markets will be showing less of trending regime and more of cyclical swings. For Nifty, our March 2019 target is levels of 11,524. Though, in very short term we expect Nifty to trade in the range of 10,000-10,600.
Nifty from September 2013 to January 2018 saw a rally from 5,471 to 11,171. This rally of 104 percent was more due to change in price multiple than earning growth as PE changed from 14 times to 21.5 times. Presently,
Nifty is trading at 19 times its FY19 EPS. In a scenario, where corporate earning is expected to grow at 15 percent compounded over next 3-5 years, this valuation is surely justified for investment. Though a 10 percent fall in the index from these levels cannot be denied as that will bring valuation close to 17 times one year forward earning.
And in a bull market it is usual for market to trade between valuation multiple of 17 times to 22 times.
Market is surely not trading at a very low valuation that one can disregard factors like political uncertainty. Also we have couple of key state election this year and outcome of these elections would surely influence market as these will be an indication of all important general election next year. But, corporate earning over next 3-5 years is expected to be strong, so negative surprises if any should be used by Investors to accumulate equities.
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