Last week of May has been quite bullish with broader market participation and optimism back on the Street to some extent. This suggests a test of 10,000 on the Nifty is quite possible, Umesh Mehta, Head of Research, Samco Securities, said in an interview with Moneycontrol’s Kshitij Anand.
Q) What is your take on the recent gross domestic product (GDP) numbers for India, and its impact on markets? How are markets likely to open on Monday (June 1) post the announcement?
A) Because of the extraordinary situation we are experiencing, the way GDP numbers are aggregated and tabulated it will be very difficult to read too much from GDP numbers and draw conclusions and inferences for the future.
But nonetheless, from the stock market point of view GDP numbers are laggards and therefore are largely discounted.Q) Do you think there is more pain in terms of GDP numbers in the upcoming quarters? What is the kind of number you are working with? (Goldman and CRISIL see a cut negative 5 percent in FY21)
A) Given the complexity of the scenario, making guess-estimated predictions is not a wise strategy but a contraction is imminent. There is enough and more evidence that all predictions can go wrong if the scenario changes.
But, the most important number is the market barometer itself and it is not a slave of GDP numbers. Things can get better earlier than expected for many reasons (e.g. a vaccine is out). One needs to be realistic in assessing rather than blindly banking on just GDP numbers.Q) What does the May expiry tell you – can we see 10,000 on Nifty in June series?
A) Last week of May has been quite bullish with broader market participation and optimism back on the Street to some extent. This suggests a test of 10,000 on the Nifty is quite possible.
However, a decisive break of the range of 9,900-10,000 still looks difficult and another round of equity sell-off cannot be ruled out unless we surpass this range.Q) We saw some short covering in banking space – what were the factors behind the move, and do you think the rally will last?
A) The sudden rally in the banking space on Wednesday (May 27) can be attributed to short covering. Foreign Portfolio Investors (FPIs) have been net sellers in Indian equities for the past three months and prior to May 28th expiry, FPIs dived in, which led to the momentum in the banking stocks.
Most of them have shown the biggest single-day gains since April 7. However, since the future seems to be bleak for banks given the moratorium, fresh cycle of non-performing assets (NPAs), and rising non-performing loans (NPLs), banking stocks are expected to underperform compared to other consumer-centric sectors this year. If the lockdown is further extended in India, the situation will worsen.Q) What is going on with Bajaj Finance, and Bajaj Finserv – both are down by over 50 percent in 2020? They both outperformed Sensex, and Nifty in 2019. Can we say that the Golden period is over? What should investors if they hold these stocks in their portfolio, and what is the outlook?
A) When other non-banking finance companies (NBFCs) were struggling in FY18-19 because of the IL&FS crises, the Bajaj twins enjoyed stupendous growth as they are more retail-centric compared to other corporate lenders.
However, this pandemic has changed the entire situation and matters became worse when the lockdowns were extended.
In such difficult times when investors are struggling with unemployment, unsecured lending and mortgage lending would be challenging for this NBFC. Its books will certainly experience contraction and the premium valuations and growth it enjoyed will undergo re-rating.
The golden period certainly seems to be over for Bajaj twins for the moment. Since the stock has already witnessed significant correction, long-term investors can hold on to it and can assess the situation once lockdown opens and ground-level situation starts reflecting on its books.Q) Last 10 years data evenly poised for bulls and bears – do you think we should be able to close the month (June) on a positive note, or will it be a negative close for the second month in a row.
A) The winner from the Bull Vs Bears tussle for June will depend on India’s policymakers and if they continue to extend the lockdown.
The negative news of an extension will disappoint D-Street as the economy is already struggling to remain afloat. While if the lockdown opens and things start stabilising slowly, benchmark indices will experience a relief rally. However, investors should not buy into this rally as it can be very short-lived and risky.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.