The rising fatalities and infected cases worldwide due to COVID-19 has dented market sentiment for nearly one-and-half-month now.
The benchmark indices have crashed more than 38 percent (from their record high seen in January) till March 23, but there was some short-covering and value buying in last four trading sessions due to government measures for poor and daily wage earners, and liquidity stimulus by RBI.
Now the market loss stands at over 30 percent from record highs. Globally, markets fell in the range of 20-30 percent as several industries shut their offices and plants.
With the number of cases surpassing 6.5 lakh and death toll crossing 30,000 mark worldwide, almost all the countries have announced lockdown to control the pandemic. Global activity has come to a halt, disrupting the economy and earnings in a major way.
For the time being, with the 875 active cases and 25 deaths, India's situation is relatively better than others as the government quickly implemented 21-day lockdown (except essential services) effective from March 25. It will definitely have major adverse effects on earnings and economy, but the government along with regulators have been trying hard to minimise the impact.
"A sensitivity analysis of the adverse impact of lockdown on economic activity suggests that real GDP could decline around 3 percent YoY in Q4FY20 while it could decline 12.2 percent YoY in Q1FY21, assuming that things normalise from mid-May 2020. With the first ever two consecutive quarters of GDP decline, the Indian economy could see its first technical recession since 1990s," Motilal Oswal said in a strategy note.
The brokerage feels if the economy, however, remains affected for a longer period, the 'self-employed' people (around 52 percent of all employment), and the 'regular wage/salaried workers' (around 23 percent) would also be seriously affected.
Complete lockdown in an already sluggish economic growth environment of India is leading to extremely volatile market conditions, Motilal Oswal said, adding if not contained well, the spread of the virus can have a significant impact on the domestic consumption-driven economy.
According to the brokerage, what makes this slowdown unique is that the policymakers' intervention – monetary or fiscally – will be broadly ineffective in addressing the economic effects unless the COVID-19 subside.
The volatility also increased sharply in last couple of weeks, as VIX hit 86 levels before falling to 70 last Friday. In such conditions, all experts advised traders to be calm and not to panic as high volatility is likely to bring more pressure on bulls, but for long term investors, it is right time to invest in quality stocks.
"Once the virus is contained, markets would stabilise. Long term investors with good quality stocks should hold on to their portfolios and see through the current storm. Traders should refrain taking long positions as all the global markets are in strong bear grip and all the small bounces have been used as selling opportunity," Motilal Oswal said.
As the volatility is the friend of long term investors by making good stocks cheaper and attractive, the best strategy for retail investors would be to accumulate good fundamental and quality stocks gradually over the next few weeks and months, the brokerage suggests.
Ace investors always say when the market is falling, it is difficult to predict the bottom, whereas when the market is rising and rising, the top would be difficult to predict. They further say when the market falls sharply, better be greedy and accumulate quality stocks, but when the market starts rising fast with a risk-on rally, the one should be fearful of the rally and better be out of market.
"While it is very difficult to predict the bottom of the market, it always rewards investors in the long term who take the benefit of such sharp fall," Motilal Oswal said.
He feels markets may continue to fall in the near term, and that's the time to start becoming greedy. Hence the brokerage suggests accumulating on a gradual basis.
As most of index heavyweights and quality stocks turned attractive in valuations, Motilal Oswal picks top 10 ideas which are Reliance Industries, HDFC Bank, Hindustan Unilever, HDFC, Infosys, Bharti Airtel, ICICI Bank, UltraTech Cement, Alkem Labs and Tata Consumer.
Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.