With the year 2018 almost behind us, market analysts and experts are now looking to the new year with hopes of a better performance after high crude oil prices and a liquidity crunch triggered by the IL&FS meltdown caused a significant correction in the markets this year.

At HDFC Securities, the top management’s outlook for 2019 remains optimistic in spite of concerns relating to the U.S.-China trade war, the US Fed hiking rates and the possibility of a coalition government at the centre.

“We have seen an acceleration of reforms through demonetisation and GST implementation… Steps have been taken to tackle the NPA (non-performing assets) menace. We are seeing the formalisation of the economy and the financialisation of savings,” said Dhiraj Relli, MD and CEO, HDFC Securities while recapping the positives from the past few years under the current government.

He went on to say that the world has high expectations from the Indian market and economy. “Whether we are able to meet the world’s expectations is a big question mark,” Relli said, adding that earnings growth over the last three years has not been impressive and easy capital is a thing of the past now.

Last year, HDFC Securities’ target for the Nifty in 2018 was 11,800 which the index came close to in August. Their target for the Nifty in calendar year 2019 is 12,400. Relli explained that the robust inflows from domestic investors which offset the FII outflows bode well for the markets going forward.

“We have seen steady growth in mutual fund (MF) inflows both via systematic investment plan (SIP) and lump sum investment. We have seen two decent corrections this year, but there has been no panic among domestic retail investors. This is the new normal for Indian markets,” he said, adding that earlier “FIIs would sneeze and our markets used to shake.”

In terms of what may cause the MF inflows to get derailed, Relli said only a situation of heightened uncertainty or a massive correction in the markets may impact it. “But I think it is a remote possibility,” he added.

Commenting on the asset liability mismatch (ALM) crisis in the NBFC space, Relli said the worst is almost over and stronger players will emerge healthy in a few more months. For IL&FS, he commended the government’s response to the situation. However, he cautioned that the monetisation of assets and recoveries along with the write-offs that banks may need to take, must be watched closely.

On the monetary policy front, Relli said another rate hike in this fiscal year cannot be ruled out but he expects the commentary to turn dovish in 2019, with the monetary policy committee (MPC) hiking rates only twice in the next year.

In fact, given the correction on crude oil prices -which according to HDFC Securities will be capped at $65-70/barrel on the upside owing to higher output from U.S, Iran, Venezuela and Libya – and low CPI inflation readings, Relli believes there could even be room for a 25 basis points (bps) rate cut.

Dipen Sheth, head, institutional research at the firm said even a 50 bps cut would not come as a complete surprise. “Falling inflation and crashing oil prices along with a global slowdown may cause the RBI to change its stance to neutral from calibrated tightening,” he said.

In terms of sectoral picks, Sheth said there is an opportunity in infrastructure stocks as he sees orders kicking in during Q4 of the fiscal year. He also added that whichever party forms the government will keep infrastructure spending up to fuel growth.

On telecom, Sheth said one “loss leader” had dragged all the players into the red with the circumstances and the government’s policies playing spoilsport. However, he believes the bleeding has to end sometime. He added that as the penetration game in telecom runs out of steam, prices will start to rise.

Among other sectors that HDFC Securities believes will do well in 2019 include aviation, which will benefit from falling crude oil prices and steady volumes, consumption which will be driven by rural demand and IT, as Indian companies equip themselves for the digital revolution.

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