Samvat 2078: Economic cycle revival, lower interest rate to drive stock market; buy TCS, SBI, HDFC Bank

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© Provided by The Financial Express Nifty has given more than 40% returns in Samvat 2077 so far

By Ravi Singh

In Samvat 2077, equity markets had a historical move as the benchmark indices touched new lifetime highs of 18000 and 62000 mark for the first time in history. Last year, the Sensex closed at 43,443 on the day of Diwali of Samvat 2076 and had gained 4,385 points or 11.23% in the past year. The Sensex has seen a record high of 62,245 in Samvat 2077, which was up 18,607 points or 42.6% from the previous Diwali. The key factors in driving the market were improved macro indicators, strong global liquidity, increased economic activities, significant pickup in vaccination, improvement in the consumption-related data, ease in monetary policy and sharp recovery in corporate earnings. Nifty has given more than 40% returns in Samvat 2077 so far, while Mid Caps and Smallcaps were the frontrunners with returns of around 70% and 80% respectively. The key references during the current Samvat were high beta, cyclical and value stocks.

As the economic cycle has picked up and revival in corporate earnings is strong, we expect the same strength to continue in Samvat 2078. The banking, financial services, technology, housing and insurance sectors will be the main drivers for the market due to their improved outlook, current lower interest rate regime and augmented government spendings. Power, Railways and Oil & Gas space will remain attractive for a mid-to-long-term perspective. Other sectors like Travel, Tourism, Leisure, Real Estate and ancillaries like cement and other building material companies are also expected to contribute in Samvat 2078. This optimism has positively replicated on the technical charts as well. The benchmark indices Nifty 50 and BSE Sensex may touch the level of 18400 and 60500, respectively around the new year.

Based on the above themes, the top picks we recommend are:

1. ONGC: The 62 per cent increase in natural gas prices by the Indian government will boost the profitability of companies. Higher crude prices, along with a modest 5-7% growth in the company’s production volume, may push its EBITDA in next year. We estimate the company’s debt-to-EBITDA ratio will strengthen to about 1.6x to 1.9x during this period. Technically also, most of the indicators like MAs, RSI, MACD and Stochastic are showing uptrend on daily chart. We expect ONGC to touch the level of Rs 170 next year.

2. GAIL (India): Improved earnings supported by higher volumes across segments supported by boosted marketing profit due to higher gas prices may drive GAIL next year. Increased production after a shutdown in the preceding quarter aided petrochemical volumes. A rise in gas consumption supported transmission volumes which will further strengthen the profits. On the daily chart, GAIL stock is having a very strong support around 140 levels and 200 day MA is supporting the buying trend. Also, RSI is in its lower zone, so we expect GAIL to touch the target of Rs 165 in near term.

3. HDFC Bank: Strong capitalisation, enhanced liquidity, reduced NPAs and robust earnings make HDFC Bank a good choice for investment for Samvat 2078. HDFC Bank share price is trading above it’s 100/200 DEMA levels in daily chart. The stock price is placed above the parabolic SAR on weekly charts which suggest a positive trend. The target for next year stands around Rs 1750.

4. TCS: The technology sector is overall in strong hands due to stronger dollar, digitalisation and improved business growth which is expected to continue next year also. TCS share price is trading above the mean with the upper band facing in the north-ward direction indicating the price to move higher. Analysing the recent volume price action the volume has been encouraging the recent upward move indicating strong hands have started accumulating the stock at current levels. Most of the oscillators are indicating the intact bullishness in the stock. We expect Tata Consultancy Services (TCS) to touch the target of Rs 3600 in Samvat 2078.

5. SBI: Currently is trading above all term MAs like 25 DMA,50 DMA,100 DMA and 200 DMA, which confirms the positive momentum. Also, RSI, MACD, ADX are trading in a comfortable zone indicating bullishness in the stock. We may expect the State Bank of India counter to continue its outperformance in the coming months as well and may move towards Rs 600 levels in the long term.

(Ravi Singh is VP & Head of Research, Share India Securities. Views expressed are the author’s own.)