The investors need not worry and have to wait for further instructions from the central bank as they will be planning to raise the new funds, said Gaurav Garg of CapitalVia Global Research
Yes Bank debacle is a cause of concern as this was a new generation bank set up by professionals but still, it struggled hard to sustain, Gaurav Garg, Head of Research at CapitalVia Global Research - Investment Advisor, said in an interview with Moneycontrol’s Kshitij Anand.Edited excerpt:
Q) It has been a volatile week for Indian market with Nifty slipping below 11,000 levels. What is the way ahead for Indian markets and what were the factors which led to the destruction?
A) In the coming weeks, the Indian benchmarks indices will be volatile with increased concerns overs the coronavirus. In the upcoming trading sessions, traders need to be cautious and once Nifty50 crosses 11350, it is expected to start a bullish rally.Coronavirus
It has been more than 65 days since the outbreak of the first coronavirus case in Wuhan, China. As of now, China has reported that the death toll at 3,000+ and confirmed cases at 80,000+.
Although the pace of spread has slowed down a bit in China, it has started spreading in the other parts of the world.
The World Health Organization (WHO) has reported that there have been over 267 deaths and 14,770 confirmed cases outside China. Countries like South Korea, Iran, Italy, Japan, and Middle Asia are highly effected.Pressure in different Sectors:
China is one of the largest suppliers of raw materials and manufacturing hub for different industries, especially Auto, Metal, Pharma, etc. Due to the shutdown of the manufacturing hubs in the affected areas, there will be a shortage of supplies of electronic gadgets which is the major supplier for India.
According to a report by CRISIL, 18 percent of Indian merchandise is imported from China.Negative Sentiments in the Global Market:
In the last couple of weeks, the global markets have dropped between 2-3 percent. The countries which were hit by the deadly COVID -19 has a seen a major downfall starting from USA’s Dow Jones which fell more than 950 points on Thursday; Japan’s Nikkei, Hong Kong's Hang Seng, Australia's ASX 200, South Korea's Kospi, India’s NSE & BSE also fell sharply.
Although the central banks of various countries have taken a measure to reduce the downfall by cutting 25 to 50 basis pointsQ) What are the important levels to watch out for on Nifty and Bank Nifty?
A) In the past five trading sessions, the Nifty has been dominated by sellers. On Friday, the Nifty opened with a gap down of 327 points by taking a support level of 10,850.
For the current week, 11,000 will act as a key level. If the market has seen the upside there will be a resistance level at 11,150 and on the downside, the support level is at 10,700. For BankNifty, the key levels to watch are 28,500 for upside and in the 26,700 on the downsideQ) What is the way out for shareholders of Yes Bank? Has it become a trading play? And, what about the funds which have invested in the bank and shareholders have an indirect exposure in it?
A) On Friday, Yes Bank shares dropped 85 percent to the record low of 5.65 after the central bank of India has capped a withdrawal limit of 50,000 and imposed a moratorium on it.
Late in the evening, the RBI governor assured that the depositor’s money will be safe here. Apart from this, the Finance minister has said that “I want to assure every depositor's money is safe, and I’m in constant touch with RBI”.
Although the limit on the capped amount is only for a month. So, the depositors shouldn’t be worrying about their deposits as both RBI and government are working constantly to devise a plan within 30 days.
The investors need not worry and have to wait for further instructions from the central bank as they will be planning to raise the new funds by considering different options.
The RBI has announced the revival plan with various schemes starting from selling the 49 percent stake to the investment bank, reconstruction plans of the board members and assuring the salaries of the employees for one year.Q) What is your near-term target for the rupee vs USD? And what are the sectors or stocks that are likely to get impacted the most? Can IT, Pharma ride the Coronavirus storm?
A) USD INR is currently in an overbought condition. The reason behind this is that the Dollar Index is getting stronger due to the FED cut interest rate overnight.
Currently, USDINR is looking on the upper side and we may see short term top near 74.70 - 75.00 levels. Strong USD will benefit export-based companies and gold-related companies. IT sector will have more impact as strong USD is a benefit for this sector.
Pharma sector companies are dependent on imports especially the companies in oil and gas space will be adversely affected. Where there are huge foreign currency loans - say infrastructure will get negatively impacted.Q) Yes Bank debacle is just second next to PMC Bank. What does it tell about the banking system? Here both private and public sector banks have failed. Do you think this would weigh on financials for some more time?
A) Yes Bank debacle is indeed a cause of concern as this is a new generation bank set up by professionals but still, it struggled hard to sustain. Indian financial environment being bank-dominated, such fiascos seriously impact the markets.
It would be harsh to question the credibility of the whole banking system by seeing these incidents, strict regulatory control could surface the position of the Yes Bank and also its Governance issues, PMC being a cooperative bank does not come directly under control of RBI, and due to its cooperative structure, the board is not professional as it is elected by its members and thus the long term sustainability being in question.
This would weigh down on Financials and market sentiments in the short-term and unless some concrete investment comes up into it along with new management.
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