Top 9 stocks to buy which could give returns outperforming index in next 2-3 years

we are very positive on private sector banks and Consumption stories in auto, retail, aviation, entertainment, building material and appliances.

  

FY19 is difficult to call because there are too many moving parts. There is the rate tightening cycle in the US, hardening of commodity price, particularly oil and then the “gorilla in the room” – political uncertainty.

As against these negatives, the earnings vibrancy is the key and equally balancing positive. Our assessment is that investments made during this fiscal will yield very good returns and purchases will be at reasonable valuations and not elevated levels what was the case in the second half of 2017-18.

Investors should work with flat to low single digit index returns. Sentiment may get tested because of negatives mentioned above. The year would be a year of consolidation and patience will be tested as also the conviction in equities.

 Private sector retail lenders will continue their stellar performance. They will gain market share at the expense of PSU and then there is the underlying growth momentum.

Top banks like HDFC, IndusInd Bank and Kotak Mahindra Bank can deliver index beating returns over the next 3 years.

Investors with risk appetite could consider Yes Bank, RBL Bank and DCB Bank. Within the NBFC space we like Bajaj Finance and Capital First and its future avatar IDFC Bank.

Although we are very positive on private sector banks and Consumption stories in auto, retail, aviation, entertainment, building material and appliances, spectacular trading bounces may be visible in cyclical commodity businesses, infra construction companies, real estate, chemicals (due to China factors), fertilisers etc. Traders and short term investors could target these sectors.

Your guess is as good as mine, but BJP getting an absolute majority is a far-fetched scenario. Base case scenario is an NDA majority with smaller parties throwing their weight around.

Governance may suffer; but hopefully, the major reforms would have been completed in this term itself, that being GST, NPA resolution and removal of impediments for large infra projects.

 Earnings will come through but PEs will compress which means that there would be sideways consolidation. The base will be formed for another spectacular up move in 2019 post general elections, cooling of commodity prices and completion of rate tightening cycle.

30-35 percent into Banks / NBFCs (private sector and retail focussed), 30-35 percent into consumer oriented stocks (Auto, Retail, Avaition, Entertainment, Building material and appliances), 15 percent in Capital Goods / EPC companies 5 percent in niche exporter / special situation.

Hold Cash at 10 percent at all times to take advantage of extreme volatility which will be the highlight of the next 12-15 months.

MORE WILL UPDATE SOON!!