As I write this, that Nifty has hit my target of 11000  which I had first posted in March 2016 and the Bank Nifty has crossed my target of 26000 which I had posted in February 2017.

In past few weeks we have been a net seller of stocks and our family portfoilo has approx 25% cash positions. With my targets on major indices achieved I am happy to take a conservative approach for now.

I won’t bet heavily in an expensive markets in hope that even crazier things may happen in the future. I am a firm believer that we should be rational in our thought process and action as that is the only thing we can control and let the market do the rest. If markets scale further euphoric hights, I won’t hesitate to sell even more of our stocks.

I am in no hurry to buy into small corrections and am now happy to wait for a big dip even if it takes several months to happen. Based on charts, I believe that major  indices like the Nifty and Bank Nifty may have made major peaks and we may not see fresh all time highs for them for next several months.

Anyways with the Nifty trading at 25X trailing earnings and Bank Nifty having doubled in last 2 years with little change in index level earnings I believe it is better to be cautious than be sorry. Besides rising global interest rates may affect profitability and also valuations of financial stocks.

Disruptive moves like introduction of LTCG tax that does more harm than good or the crackdown on foreign traded contracts of Indian stocks and indices by the exchanges and regulator have hurt investment sentiment and can  have far reaching implications with the MSCI already threatening to cut weightage of India in its global indices.

Add to the above, there are hightened political risks too, with state elections scheduled  in north eastern states in Feb, Karnataka around May; and in big states of Rajasthan, MP and Chattisgarh around December and then the big national election around April 2019.

I won’t make predictions here on who may win which state or what may happen in 2019, but I believe with so many elections round the corner, political noise should definitely lead to volatility and we will get a few chances to buy our favorite stocks at good prices in coming months.

Amidst all these uncertainities and risks, the only silver lining is that the economy is picking up again from the disruptions of last 1 year and most of our stocks are reporting strong growth now that GST and DeMon disruptions are behind us.

Here is what i think about where we are headed  coming times-

 

  • Currency-I expect the Rupee to depreciate against major traded currencies in 2018 because of higher govt deficit, inflation and rising interest rates in the developed world. USD/INR around 69 should be good for the economy and even boost our exports.
    Based on charts, i believe USD/INR has made a bottom around 63 and is now on verge of breaking out from its down-channel. We should be back to previous highs of around 69 in 2018.

    usdINR BOTTOM

    • Banking & Finance-

      I have turned cautious on this sector due to rising interest rates and rich valuations.
      With BankNifty achieveing my target of 26000, I expect a long phase of correction and consolidation for this sector.
      I am “underweight” financials if compared to benchmark indices, but it still forms a substantial part of portfolio.
      We don’t own any newly listed insurance stocks as I consider them to be overvalued by multiple times what I would consider to be fair value.
      I also plan to steer clear of all govt owned banks and financials even if they look like bargains after suffering massive corrections.

      However I don’t believe that there is any sort of crisis.  Hence we will continue to hold onto  most of our stocks which are giving 25-30% steady earnings growth even if stock prices consolidate for next few quarters.

  • Pharma- We have exited this sector completely in last few months and intend to stay away for the forseeable future.
  • Technology-
     I turned bullish on this sector around October 2017 and we doubled our allocation to it since then. I believe 2018 can be great year for tech stocks. Global growth pickup combined with my expectation of rupee depreciation should should help this sector outperform. Besides there are severeal companies which now derive a significant part of their revenue from digital or new technologies which are growing at a higher rate then older businesses.

    Although most of my stocks in this sector have run up in the last few months, i believe things will get even better with time. In recent months  Zensar, Sasken and Mastek have been promising additions to our portfolio.I believe that the NSE Nifty IT index can see 16000 by 2019. It gave a beakout around 11000 few months back and the uptrend is only getting stronger with passing time.

    Here is the thread to my earlier tweets where i had poited out in October that this sector is on verge of turning around.

  • Automobile
    We continue to remain invested in this sector forms about 20% of our total portfolio. Our big holdings- Ashok leyland and Bharat Forge had a great 2017 and I belive 2018 should also be a fantastic year for them.We booked profits in  Eicher, Maruti, Motherson Sumi and HeroMotoCo but i will be looking to buy them again if and when markets correct as they all remain great companies.

    Sticking to the leaders has been rewarding in this sector in recent past.I believe companies with proven management capability which are financially strong  will continue to dominate and prosper in times of technology desruption while smaller and weaker players struggle.

  • Construction
    In last few months we have bought stocks in this sector after mostly staying away from cement, infra and real estate stocks for last 4 years.
    In real estate, we have recently bought Oberoi Realty & Mahindra Lifespaces this year. Although I don’t expect any instant earnings miracles here, but i believe patience will be rewarded handsomely in this sector in coming years as the NSE NiftyRealty index is also coming out of a decade long consolidation.

 

  • Conclusion-
    I believe we can obtain respectable returns by focussing on right sectors. Whenever markets  give a big dip, i will be happy to add to my favorite stocks. Falling  stocks or high volatitity at a time of strong earnings growth should create exciting buying opportunities for those who take a longer term view and can focus beyond the currnet period of market turmoil.

    Disclaimer- Views Biased. This does not constitute investment advice. Do your own research before buying any stock. Read full disclaimer here.