Sustainable rally in banking looks tough, but revival can be expected in near term: Gaurav Garg

The June series has started on a positive note but ongoing US-China diplomatic issues, ending of lockdown 4.0, and the India-China border tension may keep the market volatile, CapitalVia Global Research's Gaurav Garg told Moneycontrol.

May 31, 2020 / 08:31 AM IST

Whenever you see pullbacks, they are going to be very sharp in the banking space, and considering the current dynamics, it looks difficult for a sustainable rally but some revival can be expected in the near term, Gaurav Garg, Head of Research at CapitalVia Global Research Limited – Investment Advisor, said in an interview with Moneycontrol’s Kshitij Anand.

Here are edited excerpts from the interview:

Q. What is your take on the recent GDP numbers for India, and its impact on markets? How are markets likely to open on Monday post the announcement?

A. The cost of seven days if lockdown in the last quarter has cost the Indian economy around Rs 1.5 lakh crore which has dragged the GDP growth to 4.2 percent for FY 19-20, from an estimated 5 percent earlier — lowest in 11 years.

In the last quarter, FIIs had invested around Rs 9,927 crore in the first two months but due to the disappointing Union Budget and the fear of pandemic withdrew a total of Rs. 1,18,203 crores in March 2020.

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On the other hand, DII have been investing in the market which leads the market to be in a contrasting trend.

The Nifty50 moved around 600 points which is a positive sign for the investors. However, there have been some significant developments post that with respect to the United States-China issue, India-China border tensions and governments decision on the lockdown.

Also, the GDP figures for the quarter and for the financial year have been disappointing. That too when the full impact of lockdown will be reflected in Q1 GDP data. Considering all this, the market might open at around 9,500 and trade with some negative bias.

Q. Do you think there is more pain in terms of GDP numbers in the upcoming quarters? What is the kind of number you are working with? Goldman and CRISIL see a cut negative 5 percent in FY21.

A. If the cost of seven days of lockdown is over Rs 1 lakh crore, then a complete lockdown for an estimated 45-60 days would have impacted the country badly.

The results of the first quarter of FY20-21 may reveal how badly India has been impacted due to the novel coronavirus pandemic.

On May 28, the government had released the data showing that in the year 2019-20 FDI grew by 14 percent which is a four-year high of $49.8 billion, which can be considered as the factor that many of the investors are looking at India.

Continuous efforts by both monetary and fiscal bodies by introducing various stimulus and financial packages with a focus on various sectors will also give a boost to the economy in the long run. India might take around 24 to 36 months to recover.

Also, we can see a huge fall in the Q1 GDP and the GDP growth for FY21 will be either flat or negative. Much of it will depend on how quickly the economy opens up.

Q. What does the May expiry tell you — can we see 10,000 on Nifty in June series?

A. On the last trading session of the month, Indian benchmark indices opened with 68 points downside, but started to reverse from the bottom and closed at 9580.30 which was up by 90.20 points or 0.95 percent.

On the weekly charts, the Nifty formed a bullish candle which indicates that for the short term Nifty might move to the next resistance levels at 9,700 and 9,850 and on the downside 9,400 and 9,350 will be the support levels.

The June series has started well with a positive note but the ongoing conditions like US-China diplomatic issues, ending of the lockdown 4.0, and India-China border tension may keep the market volatile.

India is in a phase where the number of cases has been increasing continuously and in the last week we have seen the highest spike in the number of cases in a single day so far.

At the same time, lockdown 4.0 ends on May 31. How the government reacts to the present conditions may keep the investors busy throughout the series.

Q. We saw some short covering in banking space — what were the factors behind the move, and do you think the rally will last?

A. The banking sector was going through a lot of pain because of the kind of bias that most of the investors have towards banks and NBFCs.

So there was a lot of short positioning in the market. There has been a swift revival across most of the global markets and India was actually lagging behind.

However, Nifty has managed to surpass its crucial hurdle at 9,450. Institutional buying in banking stocks helped the stocks gain momentum. Banking and financials will continue to play a critical role. Banking is a high beta sector.

So, whenever you see pullbacks, they are going to be very sharp. Considering the current dynamics, it looks difficult for a sustainable rally but some revival can be expected in the near term.

Q. What is going on with Bajaj Finance and Bajaj Finserv — both are down by over 50 percent in 2020? They both outperformed Sensex and Nifty in 2019. Can we say that the golden period is over? What should investors if they hold these stocks in their portfolio and what is the outlook?

A. Bajaj Finance and Bajaj Finserv both have a large customer base. Clarity over growth and non-performing assets will only come after the lockdown and completion of the six-month moratorium window.

Bajaj Finance posted a net profit of Rs. 891.57 crore compared with Rs 1,113.59 crore in the same period of the previous year.

Bajaj Finserv reported a plunge of 77 percent in its consolidated net profit to Rs 194 crore for the fourth quarter ending on March 2020, mainly due to the coronavirus impact on group companies.

Their businesses are supported by strong franchises in their respective fields and are well-poised to deliver sustainable profitability going forward. The management’s focus to remain profitable on an underwriting basis rather than investment income provides confidence.

However, it is expected that Bajaj Finance and Bajaj Finserv will sail through this downturn and will be the survivors in a weak sector. Therefore, investors should consider holding these stocks in their portfolio, instead of selling, with a long term view.

Q. Last 10 years data evenly poised for bulls and bears — do you think we should be able to close the month (June) on a positive note, or will it be a negative close for the second month in a row?

A. The June series has started with a positive sentiment. Nifty’s support is seen at 9,000 and resistance is seen at 10,000 for the first couple of weeks this month.

Financial services, infra and auto stocks have witnessed an addition in open interest with strong rollovers. Considering the factors like significant Open Interest (OI) addition in most sectors, FII segment turning positive and market rollovers, Nifty is expected to remain positive for the next month as these indicate bullish sentiment.

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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