Kotak Securities prefers IT, CG, infra, banking and media

Shrugging off the underperformance in the previous week, the Indian markets posted smart gains in the week ending Mar 27. The Sensex outperformed against the Dow Jones as well as FTSE.
However, it underperformed against the Nikkei. In terms of returns, the Sensex is up 4.6% for the week. In general, equity markets have rallied during the week.

The market sentiment in the US has been very positive with the VIX Index (Volatility index or fear index) down significantly indicating continued easing of investor fears.

In the backdrop of spiraling oil prices and monetary tightening by the RBI in the previous week, the Indian markets started the week on a subdued note. However, strong global cues coupled with government’s action on reforms front (GST bill, banking and pension funds reforms) resulted in markets trading firm.

The Indian markets have underperformed the global peers in recent months and hence a pullback was expected.

Markets have sold off in recent months due to concerns on corporate governance, higher inflation (and hence interest rates) and firm crude oil prices. Going ahead, we expect markets to move in line with global peers.

However, India’s vulnerability to crude prices remains much higher and hence the Sensex may underperform if there is a spike in crude prices.

In the near-term, any easing of tensions in the Middle East and a consequent correction in crude prices would be perceived as positive for the Sensex.

An encouraging signal has been that despite the pressure from opposition on corruption issues, the government is keen on moving ahead on the reforms front.

There are signs that decision making at government level has improved lately. In the very short-term, we believe that post the strong rally in the current week, markets may consolidate in the next week.

We prefer sectors like IT, Capital Goods and Infrastructure, banking and media. We expect good set of numbers from the IT sector given robust IT spending outlook from the developed market. The Banking sector has underperformed on expectations of decline in NIMs, which have made valuations appealing.

The Capital Goods and Infrastructure sector has underperformed due to sluggish order intake and higher material prices. This sector remains a long term buy in view of huge infrastructure deficit in the country.

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