Traditionally, bear markets have lasted for a minimum of 18 months and this time it isn’t expected to be different, Umesh Mehta, Head of Research, Samco Securities, says in an interview to Moneycontrol’s Kshitij Anand.
Edited excerpts:
Q) It seems markets have witnessed profit-taking at higher levels. What led to the sharp selloff on D-Street and then some recovery towards the close of the week?
A) As per statistics, Indian markets and the US have shown the highest correlation in the past month compared to the last decade. Hence, Monday was no different when Indian markets reacted in line with its global peers and witnessed crack in prices.
However, the latter half was comparatively buoyant since heavyweights such as Reliance Industries managed to keep markets afloat.
Additionally, sentiments were guided by the opening of factories in certain states, which helped recovery on D-Street towards the end of the week.
Q) Any factors that investors should watch out for in the coming week?
A) Until the lockdown ends, the situation at the ground will not be known, till then markets are expected to continue in a narrow range. Indices should take another 2-3 months to show significant cracks once again.
Markets will continue to be lackluster unless there is a fiscal stimulus announced which will indeed be accepted by the Street with open arms.
Q) Another mega deal for RIL’s Jio platform. What are your views and estimates on the stock and what should investors do?
A) Reliance Industries is playing its cards very smartly as it has single-handedly formed its own bull path. When the entire market is in a state of chaos, (Mukesh) Ambani announced three back-to-back deals along with a rights issue.
The future of Reliance Jio will depend on how effectively these deals help the platform to grow and achieve the scale it plans. However, for now, investors can hold the stock until the rights issue and dividend record date to capitalise on the gains.
Q) Small and midcaps outperformed in the week gone by, looks like investors are slowly accumulating beaten-down names.
A) Broader markets have substantially recovered but not all stocks would prove to be outstanding wealth-creators in the long run. A crack in the larger weights will eventually trickle down to the small and midcaps, taking them lower in times to come.
Traditionally, bear markets have lasted for a minimum of 18 months and this time isn’t expected to be different. Hence, there is still more pain left.
Investors should, therefore, patiently wait and get into sectoral leaders to prevent wealth erosion in the coming months.
Q) Moody's says India's negative rating outlook reflects a rising risk of slower GDP growth. Do you think this is factored in or will it weigh on markets and investors?
A) Markets seem to have factored in the pain, for now, given that despite the rise in daily COVID cases or negative outlook markets moved higher.
Post the lockdown, the ground-level pain will be a key data point that might lead investors to react in the markets. These reactions will be negative and ugly if the lockdown lasts longer.
Q) Do you think the lockdown will be extended beyond May 17? If yes, what will it do to the market?
A) An extension of the lockdown seems unlikely since the economy is bleeding. Currently, markets are expecting the lockdown to be lifted on May 17, however, any further extension will cause a downward movement.
Even if Mumbai and other metro cities remain in extended lockdown, the effect will be extremely negative for the economy.
Q) Specialty chemicals and pharma sectors are best placed do ride out the COVID-19 storm but, after a swift rally, are they still a good buy?
A) The pharmaceutical sector was in a long-term downtrend and faced massive pressure for the past few years. Since this is a health hazard, any positive news will take the pharma stocks zooming.
However, they can turn out to be bull traps, which we witnessed last week. Hence, investors should wait for the earnings to assess the impact of the situation on these companies.
Specialty chemicals, on the other hand, can be good from a long-term perspective since the supply from China may be shifted and Indian players are expected to gain a place in the specialty space on the world map.
However, only investors who are aggressive risk-takers should buy fundamentally stronger specialty chemical stocks.
Though current valuations are lower and they have remained so for quite sometime, only a rerating of earnings multiple will bring excellent gains in the specialty sector, which, in turn, depends on the actual bargaining power of Indian companies in the global spectrum.
Disclaimer: The views and investment tips expressed by 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.
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