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Last Updated : Mar 21, 2020 06:58 PM IST | Source: Moneycontrol.com

Worst factored in but a sharp bounce unlikely unless Nifty reclaims 9,500: Umesh Mehta

Indian markets are expected to witness a bounce back given all the negativity is already priced in. However, the 9000 levels on the Nifty50, does seem to be a strong resistance level.

 
 
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The market may have factored in an adverse outcome due to coronavirus but a massive bounce is unlikely unless we reclaim the entry above 9,500 and sustain those levels, Umesh Mehta, Head of Research, Samco Securities, said in an interview with Moneycontrol’s Kshitij Anand.

Q) A volatile week for Indian markets. A cut of more than 12% on both Sensex and Nifty50 will not go down with investors and traders. Mimicking the global trend do you think, Nifty could have made a bottom around 7832 levels?

A) Post the ferocious grip of bears, Indian markets now seem to be stabilizing. Certain pockets of sectors are also showing signs of capitulation.

Given that India VIX is stable and sentiments are steady, it seems that the markets have priced in the pandemic’s fears. A small bounce from the current levels seems likely in line with the US.

However, if the situation escalates then there can be further decline which can be witnessed only as time goes by. But, till then it seems that markets have factored in all the adversities.

Q) What is the way ahead for Indian markets? Any important levels to track for the coming week which will also be the expiry week for Indian markets?

Close

A) Indian markets are expected to witness a bounce back given all the negativity is already priced in. Since the fall was too rapid from highs of 12,200 levels, an immediate upward movement to those levels is impossible for now.

However, the 9000 levels on the Nifty50, does seem to be a strong resistance level for the bourses in the coming week. But, a massive bounce is unlikely unless we reclaim the entry above 9,500 and sustain those levels.

Q) Many stocks have declared a dividend in March. Is it because of the FY ending?

A) Union Budget 2020 presented the removal of dividend distribution tax (DDT) which would be applicable from the financial year 2020-2021.

The applicability of DDT made dividends tax-free in the hands of recipient and removal of the same have made dividend a part of income.

Hence, several companies are taking the opportunity to distribute dividends which would be tax-free to recipients paying DDT on dividends.

Q) Looking at the recent fall some reports have surfaced that promoters have started buying the shares. Can this environment can turn out to be a good buyback opportunity?

A) It is said that probably the best possible use of cash by businesses is when stocks can be bought below its intrinsic value – this applies to buybacks as well.

However, the applicability of recent buyback tax makes the promoters wary of going ahead with buybacks. It is best suited for the promoters to increase their holdings where possible.

And, if the promoters are of the view that the business is currently trading way below their intrinsic value, they may give a heads up for a buyback.

Q) Rupee breached Rs 75/USD last week. What led to the fall and what is the way ahead for the currency and the stocks which are likely to benefit the most from the sudden depreciation?

A) The main reason for the depreciation in the rupee v/s the dollar this week can be attributed to the FPIs selling spree in India. The global basket selling trend strengthened the dollar further.

However, going ahead markets are expected to stabilise with no significant depreciation in the Indian rupee since selling pressure is expected to ease. IT and pharma names such as TCS, Infosys, Sun Pharma are likely to benefit.

Q) More than 50% of the Nifty50 stocks have touched their 52-week/multi-year lows. Is there any historic reference that suggests that the worst is over, and should investors base their decision to buy stocks based on stocks that are hitting their record lows?

A) This week the US markets witnessed buying in marquee names such as Apple, Alphabet which indicates that stocks have factored in most of the negativity.

In the past too, it has been observed that large-caps experience massive selling when it’s the last leg of the fall.

Considering the same, it can be said that we are in that very same stage before we can see bounces in our bourses. Therefore, investors can slowly start accumulating strong businesses that have the potential to tide through tough times.

Buying only based on a correction would be an inappropriate strategy since a stock at its 52-week low could be a weak business and will eventually turn out to be a value destructor in the long run just like a DHFL or an RCOM. Hence, investors should be in search of good businesses rather than 52-week low stocks.

Q) Any top five stocks which you think are looking attractive based on either fundamentals or technicals post recent meltdown?

A) Here is a list of top five stocks which investors could look at for a long term basis:

ITC:

ITC has very strong cash reserves to sustain the short-term uncertainty and a possible slowdown. The valuations have also become cheap, and the company has also decided to increase its dividend payouts for the medium-term which makes it attractive.

The company’s stock price is showing good momentum in recent times against its peers.

Hero MotoCorp:

Hero MotoCorp is a strong bet on India’s rural growth recovery. A strong Rabi season and higher crop prices are expected to boost the rural economy, thus benefitting Hero the most.

It is the world’s largest two-wheeler maker and has been trading at an all-time low P/E multiple of 10x.

PVR:

Having corrected by over 40 percent recently from the high due to the shutdown of multiplexes all over the country allows long-term investors to enter this stock at a cheap price.

The company has healthy financials and liquidity which provide comfort. A significant part of the company’s operating cost is variable which will reduce costs during the period of closure.

The company’s profits will be affected in the short-term but we expect a bounce-back as soon as the multiplex is up and running.

Bajaj Finance:

It is one of the very few large-caps that manage to post solid growth numbers above 30% every quarter. Company fundamentals remain intact.

The company has managed to post good numbers even in the difficult quarter gone by. Recent correction is an opportunity to enter.

Abbott India:

This Company stood strong despite the crash in the markets which brings out the quality in its business. It has resilient financials with positive free cash flow, net debt-free structure and lastly a structured portfolio with niche businesses.

The company has also subtly improved its working capital management which makes it a good pick.

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.

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First Published on Mar 21, 2020 06:58 pm
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