Auto, auto ancillaries, NBFCs, private banks, and metals will witness recovery, says Umesh Mehta of Samco Securities.
A V-shaped recovery is likely in most beaten-down stocks and sectors. Auto, auto ancillaries, NBFCs, private banks, and metals will witness recovery as the pent-up demand is likely to compensate for the lost days, Umesh Mehta, Head of Research, Samco Securities, says in an interview to Moneycontrol’s Kshitij Anand.
Q) It was comparatively a better week for Indian markets but what is the way forward? What are the reasons for the rally – stimulus hopes, a drop in coronavirus cases?
A) Indian markets are aping the US and other global indices, as there is a revival in confidence with regards to fighting this pandemic. Many countries are showing a reduction in COVID-19-related cases and this is boosting sentiment.
Another factor that led to the rally this week was the fact that the lockdown period is coming to an end. Whether this period will be extended is anybody’s guess, but for now, investors’ hopes are up that most of the negatives are already factored in.
Q) What are the factors that investors should watch out for in the coming week, which again will be a truncated one? Initial reports suggest that the lockdown will be extended in the metros, will that be a spoiler?
A) Investors are hawk-eyed to the news on the extension of the lockdown. This will be the deciding factor that will guide bourses in the coming week.
Any surprises will cause the indices to move either with a gap-up or a gap-down. Global cues will also be a major force for the markets in the coming week. Traders should be extremely cautious and take bets only if they have a high-risk appetite.
Q) Small & midcaps have outperformed. Is it value buying which is leading to the outperformance or the liquidity factor, which is not enough in some of these names when compared to largecaps?
A) Buying is more event-driven at this point than value-driven. Investors are following the ‘buy-on-dips’ strategy but in the process, they are forgetting that companies that have performed in the past are not necessarily going to emerge winners post this pandemic.
It is extremely essential to analyse the impact of lockdowns and restrictions in trade on businesses before buying them.
Since there is uncertainty in how long the lockdown will last or if it will be extended, it is too early to assess the gravity of the crisis.
Q) One thing which we cannot close our eyes to is “recession” and the coronavirus outbreak. Both the events are interlinked and will have a lasting impact on the economies across the world, including India. What are your views?
A) Markets and the economy, in general, have witnessed recessions once every decade. It is indeed a tough time as this pandemic is not due to a financial crisis but is a health hazard.
Hence, the impact will be much larger, affecting varied industries. Recessions are tough times with job losses, shut down in small businesses and the steeper the fall, the longer time it will take for economies to revive just like it has in the past.Hence, only risk-taking investors who have the patience to remain invested for a good five years should start accumulating equities. It will not be advisable for the faint-hearted to venture into the market when the VIX is at 51 while the lower range is 30.
Q) Which are the companies that are likely to see a V-shaped recovery after the lockdown?
A) A V-shaped recovery in stock prices can be witnessed in most beaten-down stocks and sectors. Auto, auto ancillaries, NBFCs, private banks, and metals will witness recovery as the pent-up demand is likely to compensate for the lost days.
There may be a postponement in demand but nonetheless demand will remain for such companies. FMCG, as a sector, will not be attractive from investing point of view because of high valuations and the fact that a bullish consensus is already built into prices.
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