Weekly dossier: Views on markets, tips for investment from Rakesh Jhunjhunwala, N Jayakumar and others

Equity markets ended the week with strong gains on the back of better than expected economic data globally and reports of a potential COVID-19 vaccine.

For the week, both Sensex and Nifty logged gains of over 2 percent each.

While experts are of the view that the current market momentum may continue in the near-term, concerns over rising coronavirus cases and chances of the second round of lockdown along with trade tensions between the United States-China continue to linger.

Technically, we are in an absolute bull market. We are at the start of a bull market. You have breadth, you have disbelief, you have nervousness, you have a lack of commitment and market refuses to go down.

Every bull market starts with an event that shatters everybody so much that everybody keeps promising that he will never buy stocks again and then the first rise never has faith.

So technically, we are surely in what is going to be a long bull market and then sometimes the market can mislead you, but that is very rare.

It is a very initial bull market and leadership will emerge over time. Leadership always emerges from the most beaten-down stocks, it does not emerge from favourite ones.

Maybe COVID-19 is not going to be as severe as people think, maybe there are going to a lot of reforms. The reduction in interest rates is a reality, corporate India is getting extremely efficient. We have cleansed corporate India, if this efficient corporate India meets increased volumes then the earnings could go through the roof.

Market and economy aren't necessarily co-related in the short-term. Now, strong companies are getting stronger and weak ones are getting weaker.

Reliance may continue to drive market performance in the coming time. Reliance has managed to transform into retail and consumer tech play.

There are opportunities in capital goods while the agri theme is at an early stage. Cement firms are seeing strong rural demand.

There are specific opportunities in pharma if you dig deeper. Days of buying a pharma basket are gone. Time has come for pharma to become more stock-specific in nature.

The Telecom sector's weightage will increase in the index.

A weaker dollar has aided flows into emerging markets like India. Nifty is currently fairly valued after the recent run. Nifty is not expensive at the current levels. We will not take money off the table.

FY21 earnings will be a washout and we need to factor in the earnings recovery in the subsequent years.

We are positive on the auto sector as valuations are very reasonable. We continue to remain overweight on the auto sector with a long-term horizon.

Shutting down imports from China will hurt various industries in India.

The action of the last one week looks like the Nifty50 is in a transition phase and the technical setup got weaker now. The risk-reward to go long is not justified now.

It is the time to be conservative and cautious as there are conditions that the breakdown may be seen in the coming sessions. Mid-cap and Small-cap indices are safe but the problem is in mainline indices and large-caps.

The bigger rally in pharma, chemical, insurance, Mid-cap IT, gold and silver is yet to happen, whereas the rest is looking toppish now.

For the pharma index, which rallied over 60 percent from its March lows, charts are good and the trend is rock solid.

One needs to watch as to how the recovery in economy shapes up, how the geopolitics evolve, and also how the COVID-situation/global events unfold. We remain cautious on the markets.

The Indian economy was already on a downward spiral before the COVID outbreak. With an extended lockdown and rising cases, the revival of demand and issues with MSE/MSME and banks will take longer to resolve.

However, if all goes well, FY22 and FY23 may surprise many analysts as we expect all the latent demand to bunch-up as also the revival of CAPEX cycle in the backdrop of low-interest rates and cheap capital.

Hence, we are not very optimistic about FY21 earnings. The expectations of a normal monsoon, the resilience of rural/agri economy, and sharp bounce in tier 3 and 4 cities should help in some recovery in the second half.

Our preferred sectors are IT, Telecom, Pharma, Agri-related sectors/ companies, two-wheelers and metals.

Given the uncertainty over the global economy and geopolitics, there is a high probability that gold will outperform equities over the next 6-12 months.

According to our internal estimates, the fair value of Nifty50 companies has fallen by about 10 percent due to the impact of the ongoing pandemic.

However, over the medium term, this fair value is likely to grow, strongly driven by economic growth. Since the market tracks fair value growth over longer time periods, we remain optimistic about equity returns over the medium to long term.

VUCA -- Volatile, Uncertain, Complex, and Ambiguous. The pandemic has been a black swan and the response of markets, its participants and global central banks have made it into a VUCA situation.

We think markets have more than factored in the fall in fair values of companies due to the ongoing pandemic and the resultant disruption.

While it is difficult to talk about the next six months, we remain optimistic about markets over the medium to long term.

After the recent rally, the market looks fairly priced on an aggregate basis. As the economy opens up, we should continue to see a gradual recovery going into the year-end.

As we move closer to FY21-end, the potential for more upside will open up as the market would start to see recovery beyond FY22.

Post the sharp rebound, the market has priced in possible positives. Therefore, one can’t rule out that the market can’t consolidate hereon for a brief period after such strong recovery.

Hereon, investors would see more in terms of rotation between stocks and sectors rather than similar aggregate gains like we saw in the last three months.

A lot will depend on what happens globally in terms of the second wave of infections, US elections, and the general pace of macro recovery. India has recovered in line with the US and other markets and the correlation is at all-time high this year.

Strong companies across sectors will keep becoming stronger. They will be able to gain market share and attract capital. So, leaders in every small or big sector should be looked at for the next six months and even beyond.

From the medium-term perspective, investors can keep in mind themes like import substitution, privatisation along with strong balance sheets companies.