The recent fall will be a big opportunity for the promoters and cash-rich companies to increase their holdings in the company, and buyback from the market will be helpful to arrest the sharp declines and stabilise the price of the stock, Jashan Arora, Director, Master Capital Services, said in an interview with Moneycontrol’s Kshitij Anand.
Edited excerpt:
Q) Nifty50 hit a lower circuit on Monday - second time in the past 2 weeks. Can we say that we might have made a bottom?
A) It would be too early to say that a major bottom has formed. Although, the market has corrected near 80 percent of the previous move from (6825-12430.50) the volatility remains high.
We can assume that very short term support may have formed near 7,900 levels. The monthly and weekly trends are bearish and the bears have control over the market.
A pullback cannot be ruled out and the market may fall further to retest or break the low or form a higher bottom.
Q) A Lot of stocks have declared a dividend in March. Is it because of FY ending?
A) Before the new Budget proposal, which takes effect from April, companies are rushing to pay dividends to shareholders which makes dividend income taxable up to 43 percent in the hands of the recipient.
At present, shareholders in the country need not pay any tax on income from dividends from domestic companies for up to Rs 10 lakh while they have taxed 10 percent for dividend income beyond Rs 10 lakh.
After the abolition of DDT, the taxpayer of dividends will have to pay according to their respective tax slabs, which are as high as 43 percent.
To abolish DDT on dividends paid by corporates has been proposed in the Budget 2020 and transfer the tax burden completely in the hands of the recipient.
Q) Looking at the recent fall some reports have surfaced that promoters have started buying the shares. Can this environment turn out to be a good buyback opportunity?
A) Now, equities are available quite low-priced as compared to the valuation of the stocks. Recently, Tata sons had bought shares of Tata Motors, Tata Power, and Tata Motor DVR as per the reports available.
Yes, the recent fall will be a big opportunity for the promoters and cash-rich companies to increase their holding in the company. Buyback from the market will be helpful to arrest the sharp declines and stabilise the price of the stock.
Q) Rupee breached Rs 76/USD. What led to the fall and what is the way ahead for the currency and the stocks which are likely to benefit the most from the sudden depreciation?
A) By the rise of dollar’s price fears of a global credit crunch were exacerbated, in turn contributing to broad-based selling of stocks and other assets, with even traditional havens such as gold and U.S. Treasury under pressure.
That adds to demand for dollars, creating a vicious loop. For instance, On an FX-hedged basis, many non-U.S. investors own U.S. equities.
When equity market cap declines, they are left with oversized hedges, and bringing the notional value of hedges down therefore generates USD buying IT and Healthcare stocks are likely to benefit from the fall in rupee.
Q) More than 50% of the Nifty50 stocks have touched their 52-week/multi-year lows. Is there any historic reference that suggests that the worst is over, and should investors base their decision to buy stocks based on stocks that are hitting their record lows?
A) Out of Nifty 50 stocks, 45 stocks have touched their 52 week low in March (Upto 20, March 2020). Nifty and Sensex both lodged a fall of more than 35% from the January month peak.
This fall was similar to Dec 2010 to Jan 2012 and Feb 2015 to Mar 2016, at that time market fall more than 20% and steep bounced back from low levels.
So, swift recovery is likely in the markets. It is challenging to predict the bottom, but the best approach for the investors to accumulate fundamental strong and quality stocks on dips.
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.
