Investors are comfortable with either a BJP- or Congress-led coalition government as reforms have continued 67299537

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during both the regimes, said Kamlesh Rao, CEO of Kotak Securities. The froth and over valuation in the mid-cap space has come off sharply due to the underperformance compared with the Nifty, he told Rajesh Mascarenhas.Edited excerpts:With elections around the corner, what is your view on the markets going forward? Where do see the Nifty going forward.We expect the next six months to be slightly volatile due to the upcoming general elections. Given the recent tailwinds coming from macros — lower crude prices, Indian rupee appreciation, strong RBI measures on liquidity front and possibility of rate cuts in the near future — we expect 10,000 to be the floor for Nifty.Investors are comfortable with either a BJP- or Congress-led coalition government as reforms have continued during both the regimes. We expect the Nifty to be range bound between 1,000 points till the time of general elections (between 10,500 and 11,500). Post elections, in case there is a fractured mandate, then Nifty can go below 10,000 but should pull back and end the calendar year somewhere between 10,000 and 10,500. If we have stable coalition government, then we can expect Nifty to go anywhere between 12,500 and 13,000 by end of December 2019.Do you think mid-cap and small-cap stocks have bottomed out?We feel the mid- and small caps have come in the neutral zone. Many good quality mid-caps have pulled back sharply in the recent up move of Nifty. Going by recent developments we can presume that the recent lows of mid- and small-cap stocks can be the floor for them. Same could be said for the NSE MidCap Index and the BSE SmallCap Index. We feel the froth and over valuations in the mid-cap space have come off sharply due to the underperformance compared with Nifty. We are seeing earnings growth of mid-caps coming out to be better than the large caps.At today’s level the Nifty is trading at 17 times on a one year forward PE while the NSE MidCap Index is trading at 16 times on a one year forward PE. At the peak in Januar 2018 the mid-cap index was trading at 24-25 times on forward price-earnings while the Nifty was trading at 19-20x on forward PE.Which are the themes that investors should look at?Corporate banks, building materials, construction, IT and power are the sectors to watch out in 2019. In corporate banks, we expect sharp surge in earnings due to steep decline in loan-loss provisions. NPL cycles have peaked and NCLT resolutions are happening. In case of building materials, valuations have gone far below 10-year averages. Post steep decline in FY19 estimates, we expect earnings to go up by 25-30% in FY20.In the construction sector, many near term concerns like, financial closures, NBFC funding and election hangover should abate from middle of next year. Beaten down prices make valuations attractive. For the IT sector the real benefit of currency depreciation will reflect in FY 2020 margins and earnings. Demand across sectors including BFSI has been healthy.In the power sector, some of the uncertainties are fading. Power demand has revived. Capacity addition in nonrenewable segment has been minuscule leading to improvement in utilisation levels.