Private Banks, Pharma, Cement to Outperform Markets: JM Financial

Private Banks, Pharma, Cement to Outperform Markets: JM Financial

Suhas Harinarayanan of JM Financial Institutional Securities

Indian investors reaped handsome returns in equity markets in 2014, with the Sensex posting highest return in five years. The Sensex, the index of 30 large cap stocks surged 30 per cent, while midcap and smallcap stocks performed even better. Shares of banks, auto, and capital goods companies outperformed the Sensex last year.

2015 might have begun on an inauspicious note with the Sensex crashing 900 points on Tuesday, its biggest one-day fall in five years, but most analysts remain bullish about stocks.

Deutsche Bank set its year-end target for the BSE index at 33,000, citing rising government investment as a key catalyst in 2015. This means a gain of over 20 per cent from current levels.

Suhas Harinarayanan, executive director of institutional equity research at JM Financial Securities, is also positive on Indian markets though he expects muted earnings in the next few quarters. (Watch Video)

Private banks, exporters (pharma and select manufacturers) and some infrastructure sectors may lead the market rally this year, says JM Financial.

Private banks will benefit from lower cost of capital and also a fall in bond yields, said Mr Harinarayanan. The RBI is likely to slowly begin its monetary easing process and accelerate it later in the year, he added. A rate cut would help bring down the cost of capital for banks.

A pick up in credit growth could help private banks increase their market share, a trend seen over the last 3-4 years, Mr Harinarayanan said. Public sector banks are struggling with bad assets (stressed loans), which hit the highest level of 12.9 per cent of advances in the quarter ended September 30, 2014. The same ratio for private sector banks was at 4.4 per cent.

JM Financial expects exporters (pharma and select manufacturers) to outperform despite concerns over global growth this year.

Mr Harinarayanan is also bullish on the cement sector, which could get a boost from the government's focus on transport and urban infrastructure development.

JM Financial is also bullish on select metal stocks, particularly those in zinc and aluminium sector. These metals are likely to be in supply deficit zone in 2015 despite the slump in global commodity prices.

The pace of reforms and rupee's value are key things to watch in 2015, Mr Harinarayanan said.

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