Samvat 2075: Most experts predict new highs for Nifty; but want you to keep a date with debt too

Investors are looking at 2075 with hope and trepidation in equal measure. While the outcome of state elections and ultimately the Lok Sabha 2019 polls are anxiety points, domestic economic growth and corporate earnings are showing green shoots after a long time.

Most of the top experts at brokerages project the benchmark Nifty to gain 14-21% and hit 12000-12800 by next Diwali, while just one struck a cautious note with a target of 10250 (a 2% drop from the current level), indicates a DNA Money survey. From a portfolio perspective, investors should consider a balanced approach with about half money in stocks while the rest should be judiciously distributed across debt and gold while cash may act as a tactical instrument, experts suggested.

In terms of Nifty target, any level above 11700 will mark a new high. V K Sharma, head - PCG and capital markets group, HDFC Securities, is the most bullish with a 12800 target as he feels all the negatives are priced in. He expects Nifty earnings to grow by 20% next fiscal.

Pankaj Pandey, head of research – ICICIdirect, agrees that the worst may be behind in the banking space. "We value Nifty/Sensex at 18.5 times FY20E earnings, resulting in one year forward target of 12300 (Nifty)/39500 (Sensex)," he said.

A lot depends on how the markets react to elections. Amnish Aggarwal, head of research at Prabhudas Lilladher said Nifty is likely to be around 12600, much above earlier high of 11700, if the economy does not deteriorate further and India gets a stable government after 2019 elections.

"Banking system has seen a significant cleanup and earnings trajectory has been moving up. Earnings will be a positive trigger for the market. The challenges for the market will emanate from the political front. Elections will cause volatility and market multiples could shrink," points out Naveen Kulkarni, head of research, Reliance Securities.

The lone bear in all this Vinod Nair, head of research, Geojit Financial Services. His Nifty target of 10250 indicates that at best market will be flat with a downward bias. "Currently, we have one year forward base-target of 10250 for Nifty50, which is reduced from 10400 in Q1FY19. This is based on 12.5% earnings growth in FY19 and 15% earnings growth in FY20, which is lower than the market forecast of 15% and 22%, respectively. In the last two quarters, the market has reduced the earnings growth for FY19 from 20% to 15%, while we have reduced from 15% to 12.5%. Our reduction is based on H1FY19 numbers which are likely to be in a range of 5% to 10% as per the actual result of Q1FY19 and on-going Q2FY19."

In terms of main positive triggers and negative risks in the next 12 months, Arun Thukral, MD and CEO, Axis Securities, feels that liquidity evaporation in global markets to the ensuing quantitative tightening, disruption due to a disorderly exit of Britain from EU (and in case Italy, too, plans to quit EU) and fractured mandate in general elections 2019 are the three major risks for the Indian Equity markets over next one year.

"Italy's decision to exit Europe would come as a shocker, sharp rise in crude prices and escalation of liquidity crisis with a default of any big institution be it real estate company or a shadow lender, or any NBFC (non-banking finance company), etc, would surprise the market leading to risk aversion," he added.

DNA Money also asked experts about how investors should position a one-year investment horizon portfolio for this Samvat.

Jagannadham Thunuguntla, senior VP and head of research (wealth), Centrum Broking, advocates a 50% allocation to stocks/equity, 35% to debt, cash of 10% and 5% to gold. This 50% equity allocation is broadly in-line with most experts. Since 12 months is a short time and also one that could be marked by wild swings linked to political developments, investors must be balanced in their approach. "Given the volatile nature of equity over short investment horizons, one should keep a low to moderate exposure to stocks in the near term. Within this space, the pain in mid-caps may not be over yet, hence, it would be best to stick to quality large caps," argues Aggarwal.

Pandey of ICICIdirect wants investors to start with a 40% equity allocation, which could be increased at every 100-200 points fall in Nifty. He is batting for 30% debt allocation, given that after the recent rise in yields, good quality bonds are offering attractive returns. Debt investments add stability to your portfolio. It will be prudent to invest in ultra short-term and short-term debt mutual funds that maintain a high exposure to AAA-rated securities.

The 10% gold allocation is pretty standard across most experts. Current global geopolitical uncertainty warrants some allocation to gold to balance the overall portfolio.

Most experts want investors to keep 10-20% cash. This would have to be deployed in the equity market during market fall.

If one wants to go the whole hog on equities, Sharma of HDFC Securities said those investors can take 40% direct equity exposure now. "Another 40% in Nifty Next ETF to be invested in weekly SIPs (systematic investment plans) over the next 26 weeks; another 20% in dividend yield stocks - with yield in excess of 6.5%; sell the stocks if it gives you a 10% return, without waiting for the dividend. The money set aside for SIP is to be put in a savings bank account; no exposure to debt and gold because returns will be inferior to equity," he said.