Nifty 50 Stock Selection - Indian Economy

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INDEX

1. An analysis on Indian Economy
2. Portfolio Stocks
3. Short Term Portfolio: 1 month investment  horizon rationale

1. Pharmaceuticals (Lupin, Sun Pharma)
2. IT (HCL)
3. Metal and Energy (Hindalco. BPCL, IOC)
4. Banks (Yes Bank, Kotak Mahindra Bank)
5. Automobile (Mahindra & Mahindra)
6. FMCG (HUL)

1. Long Term Portfolio: 1 year investment  horizon rationale

1. Pharmaceuticals (Cipla, Sun Pharma)
2. FMCG (ITC)
3. IT (TCS)
4. Banks (HDFC)
5. Automobiles (Maruti Suzuki, Mahindra & Mahindra)

1. Metal and Energy (HPCL, IOC, Hindalco)

1. Appendix (References, Tables, Graphs)

1. An analysis on Indian Economy: The Indian economy is in early recovery stage where consumer demand and industrial production is beginning to improve.[1] Stabilization in the Indian rupee in recent weeks and moderation in oil prices is comforting.[2] The hike in MSP for farmers has the potential to lead to a spike in inflation.[2] However, Assocham said wholesale price inflation is expected to fall in coming months.[5] So far, the rupee has depreciated and has been an underperformer in Asia. [2] This makes the environment conducive to export oriented sectors like IT.

• GDP growth expected to be 7.36% in 2018, 7.79% in 2019 & 7.92% in 2020.[3] Economy had shaken off the effects of demonetisation and come to grips with GST. The consumer goods industries have been positively impacted by lowering of GST rates.
• The Nikkei India Services PMI rose to 52.6 in June of 2018 from 49.6 in the previous month. Above 50 indicates that the services sector is generally expanding with good pace, as new orders expanded the most in a year and employment growth picked up from May’s five-month low, while business sentiment dipped to the lowest since last October.[4]  
• Risks to the Indian economy continue to prevail in the forms of continued uncertainties in the global environment due to rising global protectionism, trade crisis and they could further delay a meaningful recovery of external demand.[5] Political activity will gain momentum ahead of the 2019 general elections. Despite some by-election setbacks, the NDA is likely to secure another term in office.[6]

1.   Portfolio Stocks

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1. Short Term Portfolio: 1 month investment horizon rationale

The following strategy is employed by our group to identify the profitable trades in the market

• Using the Relative Strength Index to buy the stock below the level of 25 and short selling it at above 75. The levels are different from the conventional approach as we are being conservative and don’t want to lose capital
• Using MACD to get an idea about bullish and bearish signal, whenever it converges or diverges from the signal line.

Many a times all of the above combinations are difficult to find together. So, we look at the combination of 2-3 strategies and execute the trade. Provided below is the analysis of our 10 selected stocks.

SunPharma: Riding on the wave brought on by US regulatory clearing and a product release, a strong observed momentum, and the MACD line expected to cut signal line from below. The Q1’18 results expected 70% growth in yoy PAT and 14% in yoy Net Sales. Moreover, the 50-day MA is close to crossing the 200-day MA from below indicating an uptrend in the stock.

Lupin: With a host of regulatory approvals, from European Directorate, UK regulator’s approval, USFDA approval, to new product launches in US market, the 4-yr $2.9 Billion Capex drive has started to bear fruits for Lupin. The neutral RSI at 42 with the 50-day MA that’s expected to cross the 200-day MA from below.

Hindalco: The MACD line has crossed the signal line from down below, with a neutral RSI at 50 coupled with a recent $ 2.58 Billion acquisition by Hindalco’s wholly owned subsidiary making it number one company in the aluminium value-added products segment in terms of size, adding key clients, and opening newer avenues in high end aerospace business.

Kotak Mahindra Bank: With the RSI close to oversold levels of 37 and MACD below the signal line, we expect the MACD to cross the signal line from below in the next month. While the bank recorded lower than expected profit growth levels of 12.3%, in spite of steady asset quality, largely due to higher provisions (rose by 130%), we believe the bank has laid a strong foundation—liability franchise, digitisation, capital position and limited stress hit—for a sustainable near-term growth.

Hindustan Unilever: The higher than expected revenue growth of 11.2% YoY, along with consistent volume led growth backed by new launches and premiumisation, strong monsoon, Leading the sector in topline growth which reported third consecutive quarterly result of double digit volume growth. Moreover, we expect the 50-day MA to remain above the 200-day MA, and RSI remaining neutral.

Yes Bank: MACD has just crossed the signal line from below, we expect the 50-day MA to remain above the 200-day MA with RSI Neutral. Q1’18 reporting robust and broad-based loan growth momentum (>50% YoY) with RWA/Asset improving to 81.6% (86.6% in FY17). loan underwriting and long-term business momentum (reutilisation) – will aid it post best-in-class return ratios.

Mahindra & Mahindra: A strong Q1’18 expectations with PAT growing 33.3% YoY with Net Sales up by 21.4% YoY with sales 22% in June.  With MACD crossing the signal line from below and positive momentum growing, RSI Neutral and 50-day MA above 200-day MA.