Udayan Mukherjee bets on 3 ‘Cs’ as good picking ground for long term investors

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Samvat 2075 was a rough year for investors, barring a sharp uptick witnessed in the fag end, after the government announced certain measures. Nonetheless, midcaps and smallcaps continue to underperform.

“But gold remained strong with 30 percent gains which is a measure of how the people have been risk averse,” said Udayan Mukherjee, Consulting Editor of CNBC-TV18.

“The key thing to watch out for over next one year — Samvat 2076 — would be how active the government will continue to be in trying to stimulate economic growth? The government announced many measures in the previous two months with corporate tax rate cut being the most important one which is why the market put on a 10 percent gain on September 20 and 23. Without that tax rate, the market would have languished around 10,600-10,700 levels and the Nifty would have been a flat for the year,” he added.

“The government will have to do more in terms of stimulation to stoke consumption, but capex I don’t think will come back in a hurry. Hence the first thing to watch out for would be to how much more the government and RBI can do to bring slowly economy back on track considering the global environment and outcome [which will be difficult to predict] over next one year,” he added.

He thinks in the coming year, the market would be range-bound and investors would do better to not focus on the Nifty and to set Nifty target. Even in this sub par market, many stocks generated good returns, he pointed out.

The market veteran advised to remain focused on specific stocks and be prepared for a range-bound market as recovery will probably be slow.

He stressed that there are three “Cs” — consumption, corporate banks and chemicals — that will do better.

“Consumption basket is already doing well. We have seen the results of HUL, ITC, Asian Paints etc reported in September quarter earnings this year. They have very high return on capital employed (RoCEs) and benefitted from corporate tax rate cut. They are expensive but they will continue to demonstrate growth in a sticky economic environment. There is no case to throw these stocks out of portfolio,” he explained.

On corporate banks, he noted, “It is not a contrarian bet any longer like was in last year. But names like ICICI Bank, Kotak Mahindra Bank, Axis Bank etc will continue to do well over the next one year. There might be some hiccups on the way, but I think that is a window of opportunity again. Investors will continue to remain invested. One can look at opportunities in beaten down stocks like IndusInd Bank which has been hammered out of shape for good reason – results were not great, but valuations are compelling. So good corporate private banks and may be just one odd PSU bank to play the corporate theme.”

In chemicals sector, Mukherjee said, “If we look at the stocks performance of Aarti, SRF, Vinati Organics etc the good quality chemical exporters they have done very well in last one year and in fact they have been outperformers. This is not a major sector but there is a window of opportunity continuing out there as the global chemical cycle starts to flesh out once again after a multi-year hiatus.”

Hence, he sees the 3 “Cs” would continue to be good picking grounds for long term investors. And for short term, he feels looking for tactical opportunities like public sector companies can be good trading options this year.

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