Nilesh Shah, managing director at Kotak Mahindra AMC, shared his views on the fundamentals of the market and expectations from Budget 2019.

Shah said the bipolar nature of the market is not specific to India only, it is a global trend. “The super large-caps above $100 billion market cap have delivered the bulk of the returns and the small and minicaps below $5 billion market cap globally have given negative returns. Similarly, in India too super large-caps are looking expensive, large-caps are fairly valued and small & midcaps have corrected significantly,” he said in an interview with CNBC-TV18.

According to Shah, a couple of factors will drive markets going ahead. "The RBI has started maintaining positive liquidity and has assured accommodative stance and so there is scope for more interest rate cuts to happen. However, the transmission of credit is still an issue and post Budget we will know if RBI’s reserves are getting transferred into PSU banks and if that happens, the credit cycle can revive."

“So the stage is set for higher liquidity, lower interest rates and transmission of credit,” he said.

On the earnings growth, Shah said, “The optical growth in earnings will be reasonably solid. A couple of corporate-focused private, as well as PSU banks, will show a significant jump in profitability, and pharma companies too will show reasonable profit growth. Telecom looks like its bottoming out in terms of price competition, so a reduction in losses could mean positive delta. So optically Nifty earnings growth will look superior in FY20 vis-à-vis FY19 or FY18."

With regards to the Budget, Shah said, "The market is praying for some out-of-box thinking in the budget. The budget does not have room on the expenditure side but they need to do something about private investment. The market will also keenly look for any action around strategic divestment in PSUs."