'Q4 numbers an aberration, investors should not pay attention while making decision'

Going by the inputs we have so far, the vaccine will not materialise in a matter of months. It is a time-consuming process. Stimulus and easing of lockdown will certainly limit the further downside for the markets, Ajay Khandelwal, Head - PMS at Globe Capital Markets said in an interview to Moneycontrol's Sunil Shankar Matkar.

Edited excerpt:

Q: Do you expect the market to continue to rally in May? Also is it a bear rally?

The world is in the grips of a pandemic called COVID-19. Economic activity has come to a standstill due to curfew-like situation in the country and major parts of the world. The markets have exhibited volatility rarely seen in its history. While March was a month of breakdown in the markets with index falling vertically, April saw partial revival from lower levels retracing 50 percent of the fall.

Going by the inputs we have so far, the vaccine will not materialise in a matter of months. It is a time-consuming process. Stimulus and easing of lockdown will certainly limit the further downside for the markets.

Till the time markets crossover on the other side of medium to long term averages, we have to label it as a bear market bounce back. The markets will exhibit volatility with every developing scenario.

Q: After rallying 15 percent during April and 32 percent from March lows, do you still advise clients to continue buying quality stocks or wait for stability in the market?

Quality stocks should be bought at every available opportunity because they offer limited downside in bad markets. Nevertheless, quality at an attractive valuation should be the watchword. Quality stocks provide partial protection to your capital. The markets will, however, be said to be having an overall positive disposition only when they complete the time-wise correction followed by consolidation.

A good indicator for this could be the crossover of benchmark Indices over their medium term moving averages on a conclusive basis. The investors have to take cognizance of the fact that on parameters like Price to Book Value and Market Cap to GDP ratios we are at the lower end of historical value ranges.

Q: What could be major factors to watch out for in May on the domestic as well as global front, and why?

The question confronting everyone's mind is the outlook on the COVID-19. All other factors take a back seat right now. So far the damage appears to be contained in India in relation to how it was envisaged earlier in February / March - thanks to swift and decisive action on the part of the government. The direction indicated by the 3rd lockdown also indicates that economic activity will resume shortly. Actually, the economic activity has already revived. How fast or gradual the recovery will be is difficult to assess at this stage.

Q: Given the fiscal stress, do you think the government will be able to announce large stimulus package for the economy and say let the fiscal deficit increase for this year or there could be smaller package?

It's the easiest way out for the government to announce a large stimulus package outright. Judging by the turn of events so far it would appear that the government is in a wait and watch mode and is being prudent fiscally given the fiscal stress that is already there. The government has so far been able to manage the coronavirus situation well with number of deaths being lesser in India in relation to the size of its population as compared to other countries.

But the extended lockdown that has helped achieve this has weakened the economy. The longer the lockdown gets extended, the bigger will be the size of fiscal stimulus package required to stabilize the economy. The government has certainly not shown any sign of urgency on this front.

Q: How do you read quarterly results announced so far?

Quarterly results only indicate current profitability. In the given situation we should not pay attention to them because they are certainly going to be an aberration from what the results would be under normal situation. While making investment decisions at this juncture we should pay attention to the quality of management, the nature of business and the intrinsic strength of the companies to be able to sustain themselves in the new environment and realities that would emerge post COVID-19.

Q: Given the history of market and your experience in the industry, have you seen any change in investor/trader behaviour in last four months as the market hit record high then caught in bear trap and again resumed rally, compared to behaviours in past events?

Talking at a different plane the current pandemic and the lockdown as a consequence has turned every individual including investors and traders rather philosophical in their approach. Everyone is now wary of the unknown uncertainty affecting his life and indeed his financial situation.

No one had factored in an event like COVID-19. In the end market players especially the traders will have to contend with periodic surges in the market volatility that now appear once or twice every decade (on account of variety of unknowns) and prepare himself to live with them – a step further would be to learn to capitalize on them gainfully.

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