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India is in midst of a secular bull run. We see markets rising towards 10,500 by the end of 2017. Our 2018 target is placed at 11,500. Interestingly, markets across the world show low volatility and low draw down uptrends time and again.

A case in point in the S&P 500 run from February 91 to July 98 where in nearly 7 years the S&P 500 a drawdown of more than 6 percent only 6 times and spread over just 4 months.

It appears that Indian markets are also witnessing a low volatility and low drawdown uptrend where maximum corrections haven’t been more than 5 percent this year. In that sense, 10,000 should be able to hold for this year.

IT sector is facing challenges as the way global clients consume IT services changed significantly and traditional services are experiencing pricing pressure. This scenario is expected to continue in the medium term and hence offshore and traditional service dependent IT companies are expected to face headwinds.

Infosys is no different from other big IT companies. Erstwhile CEO was trying to change things. But, they will face bigger challenges as leadership issue in a company in the middle of transformation is dangerous.

The pharma sector is trading at 20.6x rolling 1-year forward earnings/16 percent premium to Nifty versus 26.2x/42% a year ago.

FY18 is likely to be a disappointing year, with the rupee appreciation being an additional headwind along with business woes in the US as well as India.

We believe profitability of the generic business is collapsing and companies are trying to either move up the value curve or shifting to other branded markets.

During this process, there will be a pain but we believe a number of players have the ability and balance sheet strength to navigate this change. At this juncture, it makes sense to wait for more clarity before putting fresh investments in this sector.

Investors holding this sector should seek opportunities in other sectors which offer better promise and earnings visibility unless the holding periods are more than 3 years.

Investment & trading in securities market is always subjected to market risks, past performance is not a guarantee of future performance.
CapitalStars Investment Adviser: SEBI Registration Number: INA000001647

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