Nifty has strong support at 14,200; correction a buying opportunity in IT, chemicals, pharma: Aamar Deo Singh of Angel Broking

Aamar Deo Singh, Head Advisory, Angel Broking believes that the market is in consolidation mode ahead of the Q4 earnings results. As the COVID-19 situation keeps the market trajectory uncertain, Singh has advises a cautious approach at this juncture.

In an interview with Moneycontrol's Nishant Kumar, Singh emphasised that people should be prudent in making bets in the short-term till a clearer picture emerges regarding the impact of the second wave of COVID-19.

Edited excerpts of the interview:

Q. To what extent can the second wave of COVID-19 affect the market? Can it hit the Q1FY22 earnings significantly?

A. The second wave of COVID-19 has been spreading like wildfire across the country, with the mounting number of cases, definitely a serious cause of concern, both for the administration and for the industry at large.

If the current rate of spread is not contained in the coming weeks, and the chain is not broken, it could affect the corporate sector no doubt and ultimately the markets.

The markets overall, have witnessed a 5 percent correction from their all-time highs and the benchmark index Nifty50 appears to be strongly supported around the 14,200 mark.

Breaching the same would mean that markets are factoring in a further negative impact of COVID-19 on industrial production, and in turn, on the corporate earnings. So, the next fortnight will be crucial in terms of setting the trend for Q1FY22.

Q. What are the key things that you will observe in the Q4FY21 earnings of India Inc.?

A. So far, the quarterly earnings have been on an uptrend with the leading IT companies declaring their results.

It is expected that the uptrend being witnessed in quarterly results over the past couple of quarters would continue for this quarter.

It would be interesting to see which sectors have overall outperformed and which ones are the outliers.

Also, which sectors would be identified as the laggards will also be critical to know, as with the fresh wave of COVID-19 infections sweeping across the country, these sectors could be the ones to be affected first.

Q. With economic indicators gaining strength, investors were bullish on economy-centric stocks. Should we avoid them as of now in light of rising COVID-19 cases and subsequent restrictions imposed by state governments?

A. I would definitely suggest that one should hold one’s horses in the short term to gain clarity over the likely impact of the emerging COVID-19 scenario, both in India and globally.

Further, markets technically are in consolidation mode, ahead of the Q4 earnings results. So despite economic indicators gaining strength, a cautious approach would ideally be most suited in the current chain of events.

Q. Would you buy in this market? If yes, in which sectors? Which sectors will you avoid?

A. Given the present turbulence in the domestic markets, and the near-term picture appearing somewhat hazy, it would be prudent to sit out for a couple of weeks, to see how events unfold, primarily on the Q4 results front and the coronavirus infections front.

Nonetheless, any meaningful correction in the market should be viewed as a buying opportunity, with a focus on IT, chemicals, pharma and allied, apart from infrastructure.

Q. How worried are you about the Indian Rupee's weakness? Do you think commodity players will see a prolonged period of gains due to the rupee's weakness?

A. Rupee's weakness is definitely a cause of concern with the rupee losing 2.63 percent this year, against the US Dollar. The foreign flows, market direction, inflationary trends, monsoon forecasts and COVID-19 fallout, are going to have a bearing on the rupee.

The US Dollar Index (basket of six major world currencies), had gained from 89 levels in January to register a recent high of 93.47 in April. But it appears to now showing signs of weakness.

If this trend continues for the US Dollar, it could be supportive for the rupee.

Commodities, being affected positively by the rupee weakness, are likely to meet with profit-booking but the overall uptrend remains intact, with projections of improvement in the global economy to 6 percent in 2021.

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