To dodge the COVID-19 bullet, investors could take shelter in cash-rich companies that may sustain in lockdown better than other companies, Vishal Wagh, Research Head, Bonanza Portfolio Ltd, said in an interview with Moneycontrol’s Kshitij Anand.
edited excerpts:Q) Another volatile week for Indian markets – with 8,055 as a base. What is causing panic in the markets?
A) In current volatility and stretched margin norms by SEBI, retailers are hardly able to participate. Many investors, Mutual Funds and even many institutions are stuck with their longer-term holding which is bleeding more than 20-25 percent.
Many margin calls are getting triggered. The fear factor in this market may lead to a further sell-off and liquidation of portfolio and redemption of Mutual Funds.
The current lockdown scenario also forced many corporates to generate liquid cash for payment of overheads, as well as wages.Q) What are your views on the month of April? Will we be able to see some green on the screen? Earnings will be delayed what are other data points to look for?
A) Volatility is a very common factor since correction has started. So, intraday moves of 3-5 percent in Nifty cannot be ignored in the next couple of weeks.
At the same time, India VIX has corrected by around 35 percent from the top. It shows that the market will be volatile but it will remain within a range.
As far as options data is concerned, the strike of 8,000 and 9,000 in April monthly expiry has seen the highest open interest, combining both put and call together.
Whereas, the total premium is 8,000 Strike is 960 and 9,000 strike is 1122. So, a broader range for the market will be 7,040 on the lower side and on the higher side 10,250.
In short, Nifty may retest the current low at the same time it has the potential to see sharp recovery and 9,000 levels can be tested easily.
On the other hand, fall of more than 7-8 percent in USDINR has seen inflows in the Indian market historically. So, long term investors may get a good opportunity to invest; whereas, for the traders, there will plenty of opportunities with low risk and reward ratio due to higher-stop loss.Q. What is your take on the auto sales numbers-do you think the pain is likely to continue in the sectors, and it is best to stay away?
A) The sales number will remain lower only on the back of the lockout and March ending. Even post-lockout, the economy will take at least a couple of months to get back on track and slowdown in the auto sector may continue.Q) Experts have suggested sticking with cash-rich companies. Do you agree with the statement, if yes, how will it help in dodging the COVID-19 bullet?
A) 1. Cash-rich companies may sustain lockdown better way than other companies;
2. It will provide them with the opportunity to go for a strategic investment plan so that exponential growth can be achieved;
3. Corporate benefits like dividend and buy-back can be easily done.Q) What should be the trading strategy for the coming week?
A) The strategy should be to:
1. Invest in defensive sectors like Pharma and FMCG;
2. Avoid high beta stocks;
3. To invest in Gold for Hedging against uncertainty.
4. Invest in safer stock like ITC, Abbot India, and SanofiQ) India’s Mcap-to-GDP ratio has now slipped below 2008 financial crisis levels – do you think the bottom is near? What is a good multibagger opportunity for the next 5 years if someone wants to invests now?
A) Every shock in the market creates an opportunity for longer-term investors. No one currently is in a position to comment on the bottom as the disease continues to spread globally.
Currently, stocks that are getting affected due to lockdown and getting in cheaper rates should be zeroed for investment. Stocks like INOX, Indigo are few of those.Q) What are your views on the financial space? Does it look like the smart money is moving from financials towards defensives' names?
A) Due to global slowdown and lockout, the small scale industry will get affected adversely. So, the problem of NPA may worsen in the coming quarters.
Unemployment may spurt if the current situation does not come under control. All these thing will create pressure on the financial sector. It is better to switch to the defensive for shelter in this current scenario.
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