Select midcaps will continue to outperform: Jaspreet Singh Arora, Systematix Shares & Stocks

While the market would continue to remain range-bound for the next two months, a decline can be expected this week, says Jaspreet Singh Arora, Senior Vice President, Systematix Shares & Stocks India Ltd

Edited excerpts:


What is your year-end outlook for the market and will it continue to be range-bound in the coming months?

Our technical view is that the markets would continue to remain range-bound and may display weakness going into next week, 50 to 100 points lower than where it is perched right now. Between 7700 and 7800, there will be an opportunity to start putting in fresh money as that is where the bottom would be made. Also, for the next couple of months, give or take 200 or 300 points from the current levels, the index would range between 7700 and 8300. People would keep watching the global and Indian events but none of them would significantly take the market in any single direction.

A good amount of correction has happened in some of the midcap stocks. How does one view the space now?

Midcaps as a basket have corrected 20% plus and within that, we are recommending clients to add depending on whether it falls on the discretionary side or the domestic or exports space; whether it is private versus government and if they are interest rate sensitive. Depending on all events, one has to take a stock specific call and play on it. But broadly the view is select midcaps would continue to outperform.

Trump is likely to make a speech in the first week of January or so. Do you think based on his commentary, there could be a possibility of more volatility in the domestic markets, would there be more FII outflows due to it?

I don’t think it would trigger a significant amount of outflows because I don’t see a big disruption in terms of policy. Also, whatever events had to happen, are now over. There hasn’t been that much disruption after Trump came to power. For example, the only risk that remains was on the IT side of it and it doesn’t seem like the outlook would worsen from where we are. The reaction may be related to the speech side of it. Once he takes charge, things may not be as easy to execute as he had indicated in his speeches.

With increase in government infrastructure spending and more orders being executed, will infra stocks be a good buy? Are you bullish on any specific stocks?

Infrastructure is right up there among the sectors one could be looking at. But we must take cognizance of the kind of spending that would take place. It would mostly be government spending. Regular infrastructures spend like urban development and road construction would continue to be the thrust but we’re most positive on the Engineering Procurement Construction space. Some of the stocks we like here are ITDC, KNR Constructions, Ahluwalia Contracts. Their projects are diversified and their dependence on top three to four projects, concentration risk is not that much. So the risk from delay and cancellation is reduced.

How will the demand for cement grow in FY18 in your view given that the government push for affordable housing could possibly be offset by a weak urban demand?

The FY18 demand for cement in our view would be slightly muted with 5-6% growth compared to other estimates of 9% growth. We had been holding this view earlier and lately it seems to have been proven right. The tailwinds in the sector were not as evident as people were expecting. This is not to say that there aren’t positives for the sector. Some of them are urban interest rates softening, the central pay commission’s pay hike, housing for all etc. But that being said, the demonetisation even has caused a squeeze on the demand outlook for FY18.

What are some of the stocks that you are recommending to your clients as of now?

In auto, we like Eicher Motors and Maruti, In building materials, we like Ultra Tech; In pharma we like Aurobindo; in banking, we like IndusInd, HDFC and within consumer, we feel Brittania and Future Retail will be able to buck the trend of low demand and emerge as good picks.