Beaten blue-chip cyclicals are best bets: Ashwani Gujral

Ashwani Gujral, of ashwanigujral.com, shares his view on the current outlook of the market and gives his insight on the top picks among the stocks:

The Nifty, appreciated more than 3.2 per cent last week on the back of Infosys results and some movement on resolving the US shutdown and the debt ceiling issues. The Bank Nifty appreciated 4.17 per cent on the back of rupee appreciation and, hence, reduction in current-account deficit (CAD) and inflation due to imports.
The country seems to be going through a virtuous cycle of rupee appreciation, reduction in CAD and good inflows as opposed to the vicious cycle in August.

While structurally nothing has changed, we have a few weeks of respite with the appointment of US Federal Reserve governor Janet Yellen, a dove in terms of policy, raising hopes that tapering may be pushed into 2014.

The market has hence gathered a lot of positive momentum and the Nifty range may have shifted to 5700-6300.

Again on macros, the new Reserve Bank of India governor has taken policy measures with much lower collateral effects to calm currency markets than his predecessor. He, however, correctly is an inflation hawk as the most desirable direction for the economy is high growth with low inflation.

The Index of Industrial Production ( IIP) numbers declared on Friday show a pathetic growth of 0.6 per cent, a clear indication that hence since last year industrial production is at a standstill.

Interest rates are expected to hold at high levels till inflation comes down. Inflation will come down with supply coming online more than rates. That may need a new, strong and decisive government. Till then we should bank on exports picking up, and the external sector being stable so that at least one of the two deficits is under control. Tax revenues remain under stress with poor economic growth and, hence, we should expect a high fiscal deficit. On micros, there seems some movement from the defensive sector of IT, pharmaceuticals and consumption to the more domestic cyclical sectors such as banking, capital goods and real estate.

Buying into beaten blue chips in the domestic cyclicals could work for the next 2-3 weeks. Key weekly levels for Nifty, Bank Nifty and CNXIT are 6009, 10382 and 8720, respectively.