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16 Nov 2016

Opinion: As Fear Grips Market, Blue Chips Available For A Song

Many asset classes suffered collateral losses last week as huge gyrations were reflected globally on equities, bonds, currencies and commodities as Donald Trump was elected President of the US.

Many asset classes suffered collateral losses last week as huge gyrations were reflected globally on equities, bonds, currencies and commodities as Donald Trump was elected President of the US.

In the Indian context, the double whammy of unexpected US election results were compounded with the 'demonetization' of currency which will see almost Rs. 14 lakh crore of Rs. 500 and Rs. 1000 notes being exchanged by the end of this year. This will lead to economic disruption in the short term. 

The way forward:


1. The rise in US bond yields from 1.4 per cent in June end to 2.15 per cent on Friday has huge implications in the global bond market. This will see globally money return to the US as higher bond yields combined with strength in the US dollar will lead to huge inflows.

2. The expectation of a rise in US spending on infrastructure has been the cause behind the rise in yields, which has seen US financial stocks hit five-year highs as higher yields will see rise in profitability.

3. The US stock market indices had their best week since 2011 as they hit new all-time highs on the back of optimism on financials and metal stocks.

4. The strength in the US dollar and rise in bond yields however has negative connotations for the carry trade which will see money exit emerging markets and the oil market in the short term. India and Brazil could see more outflows since they were recipients of larger-than-normal inflows than the other emerging markets. This could see foreign selling for the next few weeks with rupee also under pressure.

5.  The demonetization drive will put pressure on the consumption sector, with stocks coming under selling pressure.


1. The cash-deposit drive will see banks being proxy to huge low-cost deposits, which bring down bond yields. Combined with lower cost of funds, there is a possibility of a rate cut sooner than expected from the Reserve Bank. 

2. Higher tax compliance and low cost of oil will boost government's finances which could be utilised in bank recapitalization, infra spending, social and rural healthcare initiatives etc.

3. With GST and demonetization being on a fast drive, expect GDP figures to be revised sharply upwards for FY 2018-2019 as both could add almost 200 basis points to the same.

5. At a time when bond yields are rising in global markets, in India it will move in the opposite direction on the back of demonetization, low inflation, and robust harvest due to bountiful rains.

Portfolio Picks

In the next few days or weeks we could see foreign selling in blue chip consumption stocks accelerate due to reversal of carry trade and fears of demonetization impact on the economy in the short term. This would be an opportunity to buy blue chips which are now getting to very attractive valuations.

1.     Asian Paints

2.     Hero MotoCorp

3.     M&M 

4.     Bajaj Auto

5.     Hindustan Unilever

6.     Eicher Motors

7.     United Spirits

8.     Infosys

9.     Wipro

10.   HCL Tech

The stocks could drift lower in the short term but investors can accumulate these shares on declines for a 20 per cent upside in a year.

The outperformers in this chaos would continue to be PSU stocks with banks metals being the stars for 2017. Below are the top picks from this space.

1. SBI

2. Bank of Baroda

3. PNB

4. Canara Bank

5. ICICI Bank

6. Axis bank

7. Hindalco

8. Vedanta

9. JSW Steel

10. Engineers India

(Sanjiv Bhasin is executive vice president, Markets & Corporate Affairs at IIFL)

Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of NDTV and NDTV does not assume any responsibility or liability for the same.

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