Buy Tata Motors, PSU banks, avoid Reliance, Bharti: Shankar Sharma

"The feeling of looming crisis that people have is still vague, undefined," said businessman Roland Frobel. "And you see this in their continued willingness to go out and buy. Their readiness to consume is holding up well."

Italian Prime Minister Mario Monti
Italian Prime Minister Mario Monti

Indian markets have seen mixed performance through the course of this year. Stocks saw a sharp up move in the first quarter, followed by an equally sharp downtrend in the second quarter. Markets have been flat for the past couple of weeks.

Shankar Sharma, director & global equity strategist at First Global told NDTV Profit that despite the uncertainty Indian markets are better off than other emerging and developed markets.

"The stock markets have done remarkably well vis-a-vis the BRIC pack. It has been a stand out performance," Sharma told NDTV Profit today.

Sharma is bullish in his outlook and believes that markets will end the year with gains. The sharp fall in crude prices and a reduction in the current account deficit will help stocks, he said.
Edited excerpts:

Market outlook: Markets have held up despite all the problems the government has thrown on to it, which indicates the internal resilience. We might see 20 per cent growth this year against expectations of 30-35 per cent growth because global macros have worsened. Investors should play for small gains because to get a big secular bull market is doubtful.

Crude oil is bottoming out: At the start of the year, NYMEX oil was $105-106 barrel, and now it’s within striking distance of $65-70 barrel. India will benefit because it suffers from high oil prices. Crude may go down to $60-65 per barrel over the next three months.

Falling gold imports a big positive: Imported gold was a big part of India's current account deficit, but gold imports are now down sharply.

Rupee is not an isolated case: Most emerging market currencies have fallen 20-30 per cent from the middle of last year. The Indian rupee has not been singled out for punishment.

Global headwinds have turned for worse: China's slowdown is a big worry. Brazil is barely growing. The global economy is stalling.

Sector, stock picks:

1) Auto: Tata Motors is the top pick. The company has done well in a challenging environment. It is unlikely that the stock will fall below 230-220 levels. JLR sales should not be seen as a big worry.

2) Banks: PSU banks have held up quite well indicating the intrinsic strength in them. Easing of interest rates would be a positive for PSU banks.

3) Infra: JP Associates, L&T, IVRCL are top picks. These stocks are unlikely to fall much even if markets deteriorate.

4) Oil marketing companies will benefit from the falling oil prices.

Avoid: Reliance Industries, Bharti Airtel, IT stocks, power utility firms, and metals look a lot worse than they looked six months back.