Don't see huge fall in market as fundamentals are improving; FMCG valuations stretched

We Advise to maintain right balance in portfolio given market valuations and likely interest rate hike.

  

The Nifty 50 has corrected about 300 points from its record high of 11,760 (touched on August 28), driven by sharp depreciation in the rupee following currency war in emerging markets and rising crude oil prices, which both could hit current account deficit of the country.

Yes there could be global pressure on the market, which could lead to mild correction but we don't see big fall as fundamentals are improving and a lot of companies in Nifty50 already benefitted from rupee fall.

We feels the fall in rupee is a bit of catch-up to other emerging market currencies like Argentina peso, Turkish lira, etc. but the market has done very well despite a sharp fall in the currency. The fall in rupee could also be because of likely increase in interest rates, which was on expected lines.

He said if RBI goes for interest rate hike then there could be pressure on high leverage companies like infra, select financials and NBFCs which could see slight weakness.

Autos

In two-wheeler space, Patil said volume growth is fairly good on pick up in rural demand, especially in scooters segment. In fact some of the players which lost market share earlier want to gain it again which impacted their margin, he added.

Volume growth should be fairly good in car segment and there won't be an impact on the margin front, he said.

Commercial vehicle segment surprised positively. Increase in truck loading could see some fall in demand but the segment as a whole should report 10-15 percent growth this year and new emission norms could support growth next year.

FMCG

The Nifty FMCG index, which comprises of companies like HUL, Marico, Britannia, ITC, Dabur etc, fell 4 percent in last one week.

Consumption companies commentary is very good but valuations are stretched, which the market is realising now.

We see some amount of derating in FMCG stocks on assumption of interest rate rising and high valuations but the structural story is still intact. "Correction from here on could show attractive valuations. As earnings are expected to be steady, any fall of around 10-15 percent from here on could be an opportunity for value buying.

Defence

New pricing policy related to the margin on defence orders could drive these stocks down a bit but fundamentally sound companies with strong productivity will perform better, he believes.

Overall in the PSU space, a lot of companies derated recently which seems to be enough opportunity to look at the space again. Good business dynamics provide an opportunity for long-term.

MORE WILL UPDATE SOON!!