The novel coronavirus pandemic, due to its economic impact, has been the major cause of decline seen in the markets. The popular notion of value buying still holds, but it may be a while before that phase starts, Gaurav Garg, Head of Research, at CapitalVia Global Research Limited - Investment Advisor, said in an interview with Moneycontrol’s Kshitij Anand.
Edited excerpts of the interview:
Q. Another volatile week for Indian Markets with 8,055 as a base. What is causing panic in the markets – is institutional selling causing panic in the markets? What are the other factors contributing to this bloodbath on D-Street?
A. COVID-19 has been the major cause of the decline seen in the markets due to its economic impact. The current situation has made the market a bottomless pit and thus it is bleeding institutions by diminishing its holding value.
As a result, it has become imperative for institutions to loosen the baggage. The popular notion of value buying still holds, but it may be a while before that phase starts.
Due to the ongoing lockdown across the country, economic implications have been substantial, which is leading to an economic slowdown and affecting almost all sectors and without any concrete sign of recovery, selling pressure may exist.
Q. What are your views on the month of April? Will we be able to see some green on the screen? Earnings will be delayed what are other data points to look for?
A. The situation in April may continue to be the same without any development in COVID-19 cases as this will not reduce panic in the country.
Any affirmative approach by the government for aiding the economy may be perceived positively on the street. Auto sales figures may help to make informed decisions by investors.
Q. India’s M-Cap-to-GDP ratio has slipped below FY09-levels or below 2008 crisis do you think a bottom is near? It is at the lowest since 2006. It will be difficult to say that we are near the bottom but a good multibagger opportunity for the next five years if one invests now.
A. In the current crisis, the economic slowdown has taken a toll on Midcap stocks since they are not always cash-rich like bluechip companies, such prolonged shutdown and halted economic activity deeply affects the earnings of the mid-cap.
This situation, however, has a silver lining, it gives the opportunity to buy at lower levels for holding on a long term time frame. However, the current situation is not very promising as we can see a continuous rise in COVID cases and it is difficult to say if the bottom is here or not.
Once this pandemic issue resolves, economic activity can be seen gaining momentum basically due to increased consumption and therefore a judicious investment can be made for the next five years.
Q. What is your take on the auto sales numbers-do you think the pain is likely to continue in the sectors, and it is best to stay away?
A. The Supreme Court has ordered the automakers to clear their BS-IV inventory before April 1, but many of the automakers had failed to do so due to the nation-wide lockdown from March 24.
Although few automakers are saying that the sales figures for March 2020 should not be compared with March 2019 since the situations have been completely different.
The sales of Maruti Suzuki India Ltd, Hyundai Motor India Ltd, Mahindra & Mahindra Ltd (M&M), Tata Motors Ltd and Toyota Kirloskar India Pvt. Ltd has seen a decline of more than 40 percent on a YoY basis.
The automobile industry which largely depends on the domestic and international supply chain for spare parts has been disrupted due to the lockdown. With day by day increasing cases in India the sales of April might be much worse than March figures.
Q. This is one advice which is echoed on D-Street is that one should stay with cash-rich companies. Do you agree with the statement, if yes how will it help in dodging the COVID-19 bullet?
A. Before investing in a cash-rich company one has to go through the cash and cash equivalents which are one of the key metrics to identify the company’s financial soundness.
As an investor, one has to identify the reason behind the excess cash. A company may start investing in research and development or to acquire new business, etc.
But, during the economic slowdown, the cash-rich companies are most likely to wait for the right opportunity and invest selectively based on the assessment of a business, future growth, demand and supply of that industry.
Q. What is the trading strategy for the coming week?
A. With the continuation of the turmoil in Indian benchmarks indexes, one can opt for the “Buy Low Sell High” strategy. The strategy involves a high level of experience in the market as one has to look at the historic prices of stocks and current market conditions especially during the economic slowdown or unstable conditions.
Given the global scenarios on the COVID-19 pandemic, the market still looks downside. For Nifty, 7,800 and 7,500 will act as support levels and 8,700 and 9,000 will be the resistance levels.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.