“We are seeing positive signs, as the liquidity situation of non-banking financial companies (NBFCs) is improving. Non-performing assets (NPAs) in the banking system also seem to be peaking out. Concerns over interest costs have also eased to some extent,” said Harsha Upadhyaya, chief investment officer (CIO) of Kotak Mutual Fund.
“We feel the FY20 earnings estimates are achievable. We may not see downgrades, going ahead,” Upadhyaya said.
Penning a strong earnings growth, an analyst at JM Financial said, "The estimated earnings growth for our coverage universe of 163 stocks is 23.3 per cent and 24.8 per cent over FY19 and FY20 (year-on-year), respectively, and for Nifty, they are 14 per cent and 26 per cent, for the two financial years, respectively."
"The sectors with the highest estimated growth rates are financial, telecom, cement and healthcare. The least are energy and materials. The main drivers for growth will be the credit cost recovery in the financial sector, improvement in average revenue per users (ARPUs) for telecom, better cost curve for cement, and a favourable base effect in healthcare,” the analysts noted.
Upadhyaya expects opportunities in cyclical segments such as engineering and capital goods, and cement. “We have reduced exposure to consumption because of our discomfort on valuations in the space. We are positive on private-sector financials. We are also positive on corporate lenders within the private sector after there has been management change in some of the cases,” he said.
Analysts also estimated a double-digit growth in capex over 2018-2021 led by metals, oil and gas and state government-led spending. Analysts project a strong capex as capacity utilisations have rose to as much as 76.1 per cent in the second quarter of FY19.
On mid- and small-caps, Upadhyaya said risk-reward had turned favourable in some cases.
While some of macro-economic risks seem to be abating, the domestic elections remain an overhang on the markets.
"Growth may turn higher in India, where fiscal spending might stay expansionary ahead of the general elections in April-May. This may keep pressure on India's current account deficit, but the decline in oil prices has already alleviated some of these concerns," Citi said in its 2019 Outlook note.
Analysts said the expansionary fiscal policies could also add to the uncertainties in the bond market.