Mohit Nigam, Head, PMS & advisory at Hem Securities, believes the impact of lockdown will not be very severe for the bigger firms (with firms having factories in containment zones being an exception) but small & medium enterprises may face certain issues and possibly reduced revenues.
Nigam is a Chartered Accountant with about 6 years of experience in capital markets. Before joining Hem Securities, he worked with Axis Bank as a Treasury, and Goldman Sachs Investment Banking Division.
In an interview with Moneycontrol’s Kshitij Anand, Nigam said struggling frontline sectors of aviation, dining, hospitality, multiplexes etc. can bear the brunt of a reduced or negligible demand. Hence, there will be a more sector-based impact.
Q) The second wave of COVID has gripped India fast and has forced many states into partial lockdowns in April. Do you think the market could undergo some consolidation in April or the worst is already factored in?
A) Yes, the Covid situation in India has deteriorated significantly since the last 45 days. There is a slowdown in a lot of economic activities and movements as a consequence of the rising restrictions.
We believe that this will result in short-term pressure in the markets. We are already 1000 points down on the Nifty from the recent high due to the rise in cases and we can correct/consolidate for some more time till we see some fresh trigger on the positive front which most likely could be the peak of this wave along with a rapid increase in vaccination drive.
However, the intensity with which the market shattered last year will not be repeated most likely and any significant corrections can be seen as a buying opportunity to get into resilient and solid companies.
High liquidity is likely to continue through 2023 and the local vaccination drive can quickly change the sentiments.
Q) After Goldman Sachs and Nomura, economists warn of more cuts in FY22 GDP forecasts. It seems like the clock is ticking backwards. If the economy fails to grow in a manner that is discounted by the market, it will also hurt the earnings of India Inc. Your take?
A) I think many firms, especially the top & middle level ones have by now figured out a sustainable way to work in the current environment.
Our Nifty 50 earnings are almost back to the last financial year showing an initial rebound. There is a lot of support provided through monetary & fiscal policies. RBI has estimated a 10.5% growth in GDP.
The impact hence, will not be very severe for the bigger firms (with firms having factories in containment zones being an exception) but small & medium enterprises may face certain issues and possibly reduced revenues.
This is an evolving issue and things can slip quickly out of hands which we have seen in the recent weeks. There will be a more severe sector-specific impact due to the second wave.
Struggling frontline sectors of aviation, dining, hospitality, multiplexes etc. can bear the brunt of a reduced or negligible demand. Hence, there will be a more sector-based impact.
Q) Which sectors will be back in focus amid lockdown? Which sector(s) should one add on corrections?
A) First, sectors that have shown resilience & innovative technologies like IT and private banking. Secondly, sectors that have their long-term growth story intact due to different reasons ranging from a shift away from China, introduction of PLI schemes or other manufacturing incentives, innovations in technology space etc.
Examples will be domestic equipment manufacturing, capital goods, chemicals, or even some emerging and unique players in the digital space.
Q) Which sectors will get impacted the most from the second COVID wave and why?
A) Fine dining restaurants, multiplexes, hospitality, aviation have the highest odds of negative impact due to demand-side constraints.
If the lockdown restriction increases further resulting in a loss in income and movement, then we can see a fall or postponement in demand in the discretionary consumer & automobile space as well.
Q) Do you think the volatility caused by the second wave of COVID has given the opportunity to get into stocks for the long term? How deep the cut could be? What is the kind of fall you foresee in near future due to COVID?
A) Yes, significant dips in a volatile market provide entry opportunities because the market turns around pretty quickly before anyone can anticipate and does not give a chance to the people looking for bottom fishing.
We have seen at least four instances where markets rebounded more than 100-150% in 1-2.5 years after a significant dip at a lightning-fast speed.
Hence, if we believe in the growth story & future of India, we should be able to take bolder decisions on dips to make higher returns in the markets and the overall trajectory of Indian markets is higher since it is one of the fastest-growing countries in the world.
Technically, markets have to date given a correction of 7-8% which is negligible compared to the 100% returns it gave from last March. Hence, there is a little bit of scope for a considerable correction in the markets and the current situation can instigate some players including FIIs to book profits.
For Nifty 50, 14200 is immediate support from where markets have jumped up 2-3 times recently, if anytime soon the market closes below these levels, we might see a fall till 13500. However, we are not seeing a massive correction like last year.
Q) What is your call on the rupee? What is the range you see for the currency in the near future?
A) Rupee might face some short-term pressure due to a possible exodus from debt and equity markets. US yields have jumped by more than 120 bps from last year's low and the differential between the Indian and US yields have shrunk due to which they might not be that attractive on the debt side.
On the equity front, we have seen a record inflow of more than $35 billion in the last fiscal. Hence, the resurgence in COVID cases can trigger a profit-booking in the Indian markets. Rise in cases and equity sell-off can put pressure on the rupee.
The crucial level is 75.50 and it should respect the levels. A breach of 75.50 will create a fresh high, in spite of RBI being there with a record forex buffer.
Q) Should you buy into the recently listed stocks that could have been impacted by the recent sell-off such as Nazara, Suryoday, Kalyan, Easy Trip, Heranba Industries, IRFC among others?
A) We are continuously exploring new technology and gaming options. It is an exciting space with a lot of new players and unique opportunities.
However, we would like to wait for a quarter to get more conviction about their results and numbers.
On the jewellery and travel front, currently, we are not looking to add any positions due to a direct negative impact on these sectors and we might want to wait for some ease in the current atmosphere before plunging into that space.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.