UBS expects India's benchmark index NSE Nifty 50 to fall 7 percent in 2019 due to a political and policy uncertainty stemming from the general election.
The Nifty is expected to be around 10,000 levels by the end of the year despite a recovery in the GDP growth, according to the Swiss brokerage's 2019 outlook.
The brokerage's estimate is based on an analysis of populist measures ahead of the election, their role in political outcomes, and the likely policy-reform stance for different governments following May 2019. Politics will drive the market in the first half, Gautam Chhaochharia, head of India research at UBS, wrote, questioning if the narrative will be supportive in the second half.
Prime Minister Narendra Modi-led Bharatiya Janata Party faces a tougher opposition after the electoral losses in three key states. The farm loan waivers announced by various states and Modi's plan for cash handout to farmers may put pressure on government's finances.
UBS said that three macro drivers— fiscal/monetary impulse, a disappointing capex recovery and a muted export growth—remain missing. The credit cycle, according to UBS, remains a silver lining.
The brokerage recommended investors to take more stock-specific calls rather than making sector-specific calls. Its most preferred stocks include ICICI Bank Ltd., Infosys Ltd., ITC Ltd., Petronet LNG Ltd., and Maruti Suzuki India Ltd.
Its least preferred stocks include Avenue Supermarts, Ashok Leyland, Eicher Motors and BHEL.
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Among the small and mid-caps, UBS recommend Dr Lal PathLabs, Indian Hotels and Equitas.
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