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Small, midcap stocks may witness selling pressure at higher levels: Gaurav Garg

Nifty’s movement next week may depend on the progress in the COVID-19 vaccine, hopes of a bigger fiscal stimulus from the government, expectations of a decline in daily novel Coronavirus cases.
May 11, 2020 / 04:32 PM IST
 
 
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The partial relaxation granted to less affected areas from lockdown will be helpful in reviving the economy in certain aspects and therefore investors seem to be accumulating these stocks, but selling pressure likely at higher levels in small & midcap space, Gaurav Garg, Head of Research at CapitalVia Global Research Limited- Investment Advisor, said in an interview with Moneycontrol’s Kshitij Anand.

edited excerpt:

Q) It seems like the markets seem to have witnessed profit-taking at higher levels. What led to a sharp sell-off on D – street and then some recovery to the close of the week?

A) Indian stock markets fell on both local as well as global cues. On the global front, the US President Donald Trump criticizing China’s handling of the Coronavirus pandemic unnerved investors, and on the domestic front, an extension of the nationwide lockdown dampened the sentiment.

Stocks dropped globally after the US President on Sunday said that Beijing misled the world about COVID-19.

On the domestic front, earnings and the economy would take time to revive even if all restrictions are lifted. The government may not ease the curbs anytime soon considering the number of new cases we are seeing every day.

All the above factors turned the investor's sentiments negative fuelled by global tensions which eventually led to the downfall of Nifty.

Global market trends turned positive following attempts to defuse tensions around the US-China trade talks, which ultimately led to the recovery of the domestic markets. Markets seem to be awaiting the announcement of a stimulus package from the government.

Q) Small and midcaps outperform in the weeks gone by. Looks like investors are slowly accumulating beaten names?

A) The market has been trying to move up, and now with global markets also bouncing back, investors are now feeling that the time for value buying has arrived.

The partial relaxation granted to less affected areas from lockdown will be helpful in reviving the economy in certain aspects and therefore investors seem to accumulate these stocks, but selling pressure likely at higher levels in small & midcap space.

Q) Any factors which investors should watch out for in the coming week?

A) Nifty’s movement next week may depend on the progress in the COVID-19 vaccine, hopes of a bigger fiscal stimulus from the government, expectations of a decline in daily novel Coronavirus cases.

There is likely to be some stock-specific action due to earnings. Volatility may remain higher in the coming week. Small and midcap stocks may witness selling pressure at higher levels.

Q) Another mega-deal in RIL’s Jio platform. What are your views and estimates on the stock, and what should investors do-buy, sell, or hold?

A) The oil giant company has a firm belief that the data will be the next oil and it has been focusing more on the same platform.

With the introduction of Reliance Jio which had disrupted the telecom business, it had been continuously entering different sectors and making progress aggressively.

Many companies struggle to raise funds and for them, it might take years but that is not the case with Reliance Jio which is among one of the high values companies in India.

Within a short span of time, it has raised more than Rs. 60,000 cr. The latest deal is with the Vista Equity Partners for a stake of 2.32 percent which is valued around Rs. 11,000 cr.

The deals with tech giant Facebook which they combined planning to enter to the various businesses especially focusing on UPI payment platform and retail has boosted the valuation of the Reliance Industries.

We recommend investors to hold their position for the long term as the stock is expected to outperform the index.

Disclaimer: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.

Q) Moody’s say India’s negative rating outlook reflects the rising risk of slower GDP growth. Do you think this is already factored in or will it weigh on markets and investors' decision making?

A) In November 2019 Moody’s has downgraded India’s outlook from stable to negative with respect to the lower economic growth.

On Friday, in revision to that Moody’s stated that “India's rating outlook reflects the rising risk of slower GDP growth, low policy effectiveness.”

The already slow economic growth, less job creation, high debt burdens, and credit crunch among NBFC and others have highly contributed, in addition to that the outbreak of Coronavirus and the extension of lockdown had been highly impacted the economy of India.

On Friday, the benchmark indices have ended at 9521.50 or 0.57 percent positive. From the day's performance, we may conclude that the market has already discounted the Moody’s rating about India and investors are still in hope for another stimulus package and closely watching various treatment and vaccine options to the COVID-19.

Q) Do you think lockdown beyond May 17? If yes, what is the kind of impact it could have on markets?

A) With a growing number of cases of COVID 19 and the situation not getting under control, it looks like the lockdown will be extended in many parts of the country which are getting COVID-19 cases on a regular basis.

The situation is very dire, with no medicine/vaccine, and lockdown seems to be the only available and possible way to flatten the curve. This makes the probability of lockdown extension very high, at least for the affected areas.

Lockdown has already taken a toll on the economy. However, the lockdown may be relaxed in certain places and this would have mixed effects on markets and would make market choppier.

Q) Specialty Chemicals, Pharma best-placed sectors do ride out of COVID – 19 storms. But, after a swift rally, are these still a good buy at current levels? What should investors do?

A) The COVID-19 panic has set pharma stocks on fire. Countries at present are halting exports of essential drugs, but this is only temporary. In the long term, the risk from protectionism on India's low-cost export model will be countered by its sheer price competitiveness.

After this pandemic, there could be significantly higher spending both by the government and private sector on healthcare, specialty chemicals, and pharmaceuticals.

There are supply-side challenges but the overall outlook is positive and hence investors can add these stocks (at dip) to their basket.

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.
Kshitij Anand is the Editor Markets at Moneycontrol.

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