FIIs pulled out Rs 65,817 crore from Indian equities in March alone. The financial sector was hit the most as the lockdown impacts collection efficiency of MFI, NBFC, HFC, SFB and banks.
The market had taken nearly four years to rally from 7,511 levels in March 2016 to hit record high of 12,430 on the Nifty50 in January 2020. But it took only two months to lose those gains and reach the levels of 2016 again.
It was a complete devastation of every asset class in a short span of time by the novel coronavirus or COVID-19 pandemic, which reportedly started from China — the world's second largest economy — and spread to other parts of the world in a couple of months.
The pandemic has forced several parts of world to go for complete lockdown. Confirmed cases have surged past 12 lakh with over 64,000 deaths worldwide. As a result, Indian equity benchmarks crashed 35 percent from record high levels seen in January and investors lost around Rs 52 lakh crore of wealth in two-and-half-month.
"These are unprecedented times - haven't seen anything like this in four decades because it is more of a crisis of confidence than a financial crisis," said LKP Research.
FIIs pulled out Rs 65,817 crore from Indian equities in March 2020 alone, while financial sector hit the most due to lockdown that impacts collection efficiency of MFI, NBFC, HFC, SFB and Banks.
LKP expects NBFCs to remain challenged despite liquidity-easing measures announced by the Reserve Bank of India (RBI), due to wider credit spreads and asset quality concerns. Lenders to segments like commercial vehicle, SME and self employed groups would face challenges, it feels.
The Centre announced welfare measures worth Rs 1.7 lakh crore, while the RBI announced a Rs 3.7 lakh crore liquidity stimulus package. But most experts feel that these measures being announced globally amid such crisis, generally help in the long term rather than the short term.
Along with equity, oil hit the most due to lockdown-led low demand across the world. International benchmark Brent crude futures crashed 68 percent from 2020's high seen in January and the fall of price below the production cost hit the oil producing countries very hard, but it was a boon for India.
"The biggest oil shock with two low cost oil producing countries flooding the market is in our view a worry for the USA in an election year at a time when the Pandemic is devastating its economy," said LKP.
India being a large importer of oil would save more than 1 percent of its GDP and companies consuming oil and having a certain degree of pricing power in its products stand to gain, it added.
The brokerage feels the impact of lockdown is a major risk for REITs due to fall in rental income, industrials and capital goods due to labour dislocation, hotels due to non-occupancy, multiplexes, aviation, logistics, transportation, etc.
"Job losses would in our view impact consumer discretionary sector as consumers defer and postpone purchases," it said.
As a result, selling was seen across sectors, with Auto, Bank, Metals, Realty and Media losing around 45-47 percent. Infra, IT and Energy were down 28-31 percent.
Hence, like every expert, LKP also feels it is an opportunity to accumulate quality stocks. The brokerage has advised accumulating in tranches, as business leaders having low financial leverage and strong competitive positioning in the below mentioned sectors are likely to gain after the COVID-19 crisis:
SBI, ICICI Bank, HDFC Life, Bharti Airtel, CONCOR, Finolex Industries, HDFC, JK Paper, HUL, Colgate Palmolive, Bharat Electronics, Cipla, United Spirits, among others, are included in its stock picks list.
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