The Indian market this week has reversed the upside trend and has gone below 10,000 levels. In the near term, it looks like the market will continue to see some selling pressure on the back of weak economic commentary and rising cases of coronavirus, say market observers.
Gaurav Dua of Sharekhan feels that the market will grind down in the immediate term and will remain under pressure as the risk-reward ratio has turned unfavourable now.
According to him, the reopening of the economy is a positive event but the long lockdown has left deep scars on the economy which will take time to recover to its optimal levels. The stabilisation in the economy will not be seen before the latter half of this fiscal.
"We expect leading private banks and certain consumer discretionary companies to recover relatively faster with the withdrawal of lockdown. The rural demand is relatively less impacted due to good harvest, normal monsoon, and a considerable increase in minimum support prices (MSP). Thus, investors can look at rural demand-driven companies in Agri imports and consumer space," added Dua.
Mirroring a similar view, Shyamsunder Bhat from Exide Life Insurance also feels that the market in the near-term looks unstable. We remain cautious on the market, especially post the substantial rally of 30 percent in the past 2-3 months, after the sharp fall in March, he said.
"Nifty50 is still about 25 percent below its lifetime high, one has to consider the fact that an entire year (FY20-21) earnings growth expectation has been erased (GDP itself is now expected to be in the negative territory in the present year), and though we could see a sharp earnings growth in FY22, the present valuation fairly values the 2-year CAGR in earnings. Hence the valuation upside appears limited from current levels," explained Bhat.
Furthermore, he elaborated that equities continue to be a good long-term asset class, but investors would need to ideally have a minimum of 5 years as their time-frame to reap full benefits of their investment.
Post-COVID-19, Bhat feels that the government will continue to remain under severe pressure due to its fiscal position. However, in the second half of this fiscal, after further lockdowns, the economy will pick up some pace.
"US-China trade developments, vaccine progress and government's measures in reviving growth will be the factors to influence the market. Also, the recent affirmation of the existing rating and outlook by S&P should provide comfort given that the government will spend on infrastructure later this year," added Bhat.
According to him, well-managed companies across sectors could reap the benefits in the longer term. Strong managements and cash-rich companies will play out well.
Pharmaceuticals and chemical space look good but recent rally in pharma makes us slightly cautious about its uptrend in the future. Meanwhile, selective telecom stocks could emerge to grow stronger and consumer staples will continue its pace given the revival expected in the rural areas. Cement and oil-marketing companies' valuations are favourable right now, added Bhat later.
Sampath Reddy of Bajaj Allianz Life Insurance expects market to be range bound in the very near future citing Covid-19 impact and the potential risk of second wave of the disease. However, he feels that this is a good time to invest or increase allocation to equities.
"Government and RBI will continue with measures to stimulate demand which will bring gradual recovery. In about 2-4 quarters, we could come back to near normal. However, the stock prices could anticipate this well in advance and markets should recover ahead of the real economy," said Reddy.
According to him, pharma sector continues to look good. In spite of higher valuations, FMCG companies may also continue to do well. We also like sectors such as telecom and manufacturers of Agri-inputs, which are relatively less affected due to Covid-19 led slowdown. Also the “export oriented” companies such as IT services and other export manufacturers could also see a good performance.
First Published: Jun 12, 2020 4:23 PM IST
