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Last Updated : Sep 29, 2020 09:10 AM IST | Source: Moneycontrol.com

'Weakening fiscal position can impact sovereignty of debt market as COVID risks persist'

The US presidential election, world's largest capitalist country, has never impacted the trend of global equity market in the long-term.

Sunil Shankar Matkar

The biggest risk is how long COVID-19 will continue, availability of vaccine and distribution, which is expected in 2021. The market hopes that no private entities will go bankrupt due to pandemic with government support. So, if any financial issue is triggered in the economy it will be a big issue for the market, Vinod Nair, Head of Research at Geojit Financial Services said in an interview to Moneycontrol's Sunil Shankar Matkar.

Edited excerpts:

Q: Do you think the market entered into correction mode after a consolidation and rally seen in the past few months? Is the valuation a reason behind this correction or something else, why?

Close

It is a much needed correction after the V shape recovery, in a span of less than 6 months. Nifty50, Nifty Midcap100 and Nifty Smallcap100 was up by 57 percent, 63 percent and 90 percent, respectively, from 52-week lows to the recent high. Valuation is also one of the factor but not comparable as economy was expected to normalise only during 2021. The rally was supported by fiscal & monetary policy which took market ahead of fundamentals. The economy needs another financial support to maintain economic & market stability.

US presidential election and spurt in COVID cases impacted the trajectory of easy money and economic recovery. It triggered global risk, at least in the short-term, FII inflows has turned negative.

Q: Should one wait for more correction or is it a good time to buy stocks?

We feel that 10,300 to 10,500 is a strong support for Nifty50 limiting fall by 5 to 7 percent. Resistance levels are 11,150 and 11,300. For the next 2-3 months, accumulation will be a good strategy for long-term investors and profit booking for short-term investors, due to likely dormancy in global financial policy. A reversal in trend can happen swiftly, if fiscal & monetary stimulus is provided. The momentum will get stronger if new cases of COVID-19 infection stabilises.

Q: What are those sectors one should look for investing now and why?

The sectors which are defensive in nature and have a positive outlook in-spite of weak economy, like Pharma, IT, FMCG, Chemical and Telecom, will tolerate the negative trend of the market and bounce back stronger compared to the other sectors. Banking sector is a good value buy due to low valuation, NiftyBank index is trading 40 percent below 7-year average of 1 year forward P/B. Cyclical sectors have deep value on a long-term basis, risky in the short-term.

Q: FII turned net sellers in September after consistent buying in the previous four months. Is it a major concern and why?

Well, as we know FII inflows are based on the risk-on and risk-off strategy in global market. Fluctuation in easy money policy & global events influences the flow of funds in the short-term whereas on a long-term basis, they have a long cycle on India. We feel that the cycle will reverse positively post US presidential election, QE from US and ECB which is expected by the end of December 2020.

Q: Monetary policy committee will be meeting next week. What are your expectations, will the MPC cut repo rate further or wait for some more time?

Inflation in India is high compared to the target set by RBI and money supply in the economy is at record high. Rising COVID-19 cases has slowed the economy, loan demand & benefit of rates transmission. As a result we expect a hold policy by MPC. In the meantime, we anticipate RBI to continue its accommodative stance and measures like OMO to ensure liquidity in the system.

Q: What are major risks (global and domestic), one should keep in mind before investing? Is the US Elections outcome a risk for India?

The biggest risk is the length of COVID-19, availability of vaccine and distribution, which is well known by the market and ease is expected in 2021. The market hopes that no private entities will burst or bankrupt due to pandemic with government support. So, if any financial issue is triggered in the economy it will be a big issue for the market. At the same time, fiscal position of government is weakening which can impact sovereignty of debt market. The US presidential election, world's largest capitalist country, has never impacted the trend of global equity market in the long-term. The ongoing volatility will vanish post the outcome and the market is expecting a change in guard, as per survey.

Q: So far 10 companies launched IPOs till September. Do you expect more IPOs to hit Dalal Street in coming months?

A total size of Rs 51,000 crore IPOs is estimated in FY21, going forward. The urge to go for IPOs is led by the intention of promoters and venture investors to cash-out given high availability of funds while economic uncertainties is high. At the same time, decent amount of discount is provided in prices or valuation to attract investors. The success of the IPOs, going forward, will depend on the momentum of market, quality of the companies and businesses provided, as seen recently.

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
First Published on Sep 29, 2020 09:10 am
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