Since the earnings season has begun, volatility will remain high across the board, traders should focus more on risk management aspect and avoid naked leveraged trades.
Since the earnings season has begun, volatility will remain high across the board, traders should focus more on risk management aspect and avoid naked leveraged trades, Ajit Mishra Vice President, Research, Religare Broking, said in an interview with Moneycontrol’s Kshitij Anand.
Q) Indian market rose marginally in the week gone by, but do you think that we are out of the woods? What should be the trading strategy of investors for the rest of the October series and the important levels to track?
A) The Nifty50 traded lackluster last week and somehow managed to end in the green. However, the price action suggests that there could be further consolidation. Thus traders should continue with the stock-specific trading approach.
Since the earnings season has begun, volatility will remain high across the board. Traders should focus more on risk management and avoid naked leveraged trades. We expect the Nifty50 to hover within the 11,000-11,500 band next week.Q) Do you think any adverse decision on the trade war front over the weekend could put bulls on the back foot? We have seen plenty of volatility in the week gone by already due to trade war rhetoric?
A) The trade war tensions between two of the largest economies, the US and China, have been one of the most crucial events which have kept global markets on the edge.
We believe that any adverse decision on the trade war front would negatively impact the sentiment. However, we believe that the impact on Indian indices would be less severe as compared to US and China markets.
A) The correction in several stocks is a result of profit booking, as well as concern over muted demand and expensive valuation as the recent government measures, could take time to yield results.
We believe that in a volatile market, the focus should be on stocks with strong corporate governance, a healthy balance sheet, comfortable valuations and good growth prospects.
Some of the good companies are available at an attractive valuation, thus providing a margin of safety. On the other hand, one should exit/book losses in stocks with deteriorating fundamentals, high debt, and corporate governance concerns.Q) What are your views in Infosys and TCS – which one is a better bet or investors should move funds to midcap IT?
A) We are positive on Infosys and TCS both from a long term perspective and recommend to buy on the stock on dips.
Infosys: We believe that the business growth could witness some pressure in the near term but we remain constructive on long term growth prospects of the company due to its increased focus on digital business, a rising share of high margin business and strong management.
TCS: The company is India’s largest IT company and offers its services to a wide range of industries such as BFSI, manufacturing, Telecom, retail, transportation, and insurance.
It has over 4,20,000 consultants present in over 50 countries. In terms of revenue, 51 percent of its business comes from North America. We believe that the company is well placed to benefit from the increasing demand for offshore IT services seen over the last decade.
Further, the company’s wide experience and strong clientele would enable it to maintain its strong position in the IT space. In Q2FY20 the company delivered a subdued set of numbers.
Nonetheless, we expect revenue growth to remain healthy in the medium to long term led by strong traction in the digital revenue and strong momentum in deal wins.Q) Banking stocks have again back in the bears' grip due to the news flow and asset quality woes. What are your view and how should investors approach this sector now?
A) The negative news flow regarding exposure of banks to troubled housing finance companies as well as fresh asset quality concerns post-PMC bank debacle has led to pessimism in the banking space.
Despite the RBI’s 25bps rate cut in this bi-monthly policy and cumulative rate cut of 135 bps so far this year, banking stocks continued to decline from the highs made post corporate tax cut announcement.
Going forward, banks and NBFCs are likely to be key beneficiaries of a corporate tax rate cut and this may start reflecting in their Q2FY20 earnings. Further, the impact of lower interest rates on the loan book/credit growth should also be visible in the coming months.
Moreover, liquidity infusion through RBI’s surplus transfer, recapitalization of public sector undertaking (PSU) banks and mega amalgamation of these banks are the other key factors that should spur banking sector growth.
We also expect asset quality to improve as weak assets are recognised and provided for and banks adopt stringent norms for loan disbursements.
Currently, many banks are trading below their historical P/BV average. Hence any correction in banks with high asset quality and strong corporate governance should be viewed as a buying opportunity.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.The Great Diwali Discount!
Unlock 75% more savings this festive season. Get Moneycontrol Pro for a year for Rs 289 only.
Coupon code: DIWALI. Offer valid till 10th November, 2019 .