Harshad Chetanwala, co-founder, MyWealthGrowth.com, says if India’s coronavirus situation doesn’t improve, nervousness among global investors could lead to redemption pressure. In April, foreign institutional investors net sold more than Rs 12,000 crore worth of shares after six months of buying.
India has been reporting a record spike in daily cases for weeks now and death toll, too, has been mounting as the second coronavirus wave tear through the country. Concerns for the Indian economy are also growing. The market has fallen 6 percent from its record high in February.
In an interview to Moneycontrol's Sunil Shankar Matkar, Chetanwala says the markets have not fallen more because of good earning numbers, especially from the banking side. Edited excerpts:
Do you think increased restrictions put in place by states to check the spread of coronavirus will hit earnings growth for the June quarter? Have you reduced your earning estimates for FY22?
It is likely that if there are elongated lockdowns, there could be an impact at the corporate and consumption level. Unlike the last year's COVID, this time tier 2-3 cities along with rural areas are equally affected. Last time, there was support for the economy from this section, which at present have got equally affected. This can have an impact on jobs, income and the economy. So far, the base effect is helping companies post decent growth numbers but demand may weaken due to the present COVID-related situation.
What will be the impact of the second wave on the Indian economy in Q1FY22? Will growth be lower than expected?
Yes, the second wave has the potential to lower the GDP growth. Consensus estimates for GDP growth in FY22 ranges between 12 and 15 percent YoY on the back of a low base effect. While there is no national lockdown and many state governments have announced lockdown keeping few industries and businesses operational either completely or for a limited period, it still could have an impact. Therefore, there could be a marginal reduction in the consensus estimates by 1-2 percent.
Do you think the market can see another 5-10 percent correction in the coming weeks as the second wave shows little signs of abating?
In the month of April, FIIs have been net sellers so far. If the fears of COVID heightens among global investors, one could witness further redemptions. If this second wave prolongs, then it can result in some volatility as it brings the element of nervousness among investors. However, this volatility or consolidation can be used as an opportunity to invest.
If there is more selling pressure in the coming weeks, which are the sectors to buy and why?
In case of more selling pressure, depending on valuations, consumer discretionary sectors could see a higher impact. There could be an opportunity to look at this sector along with banking.
The market, so far, has not seen any major impact of the record spike in infections and has been getting buying support on every major fall. What are factors supporting the market?
There has been a marginal decline in the market from 52,000 levels. So, there has been some consolidation. So far, markets have not fallen more because of some reasonable earnings numbers, especially on the banking side. Domestic and retail participation has also been providing support to the market.
FIIs sold more than Rs 12,000 crore of shares in April after buying in the previous six months. What are the reasons for FII selling and do you expect outflows to continue in May as well?
From a global investor's perspective, particularly on the emerging market side, Brazil is on shaky ground and Russia has political issues which have been making investors nervous for some time. Global investors continue to invest more in markets like the US. Apart from these developed markets, India and China are of increasing interest as they are relatively better positioned to attract capital because of a large population base, earnings potential and long-term growth. Global outflows are based on many factors and therefore it always difficult to predict. But in general, global investors are nervous about this second wave and this could lead to some volatility in the market.Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.