Investment strategy amid volatility: Where share market is headed; which stocks can give best returns

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Published: June 17, 2020 7:34 AM

The next 9-12 months could be tough for Reliance Industries shareholders given the near term performance of the stock.

Sensex. Nifty, RIL, Reliance Industries, Investment strategyCurrently, the wave of liquidity unleashed by the US Federal Reserve and other central banks has created a mini-bubble in the equity markets.

After posting gains for the two consecutive weeks, Indian share markets ended one per cent lower last week. This week too kicked off on a negative note. Even as India emerges from the lockdown in a gradual manner, and investor sentiment remains buoyant, investment advisor Sandip Sabharwal explains there are a few factors that are worrying the Indian stock market. In an interview with Surbhi Jain of Financial Express Online, Sandip Sabharwal shares his trading strategy during volatile markets. Further, he talks about Reliance Industries’ partly paid up rights shares bumper listing on BSE and NSE, and reveals how tough the road ahead is for RIL shareholders. Here are the edited excerpts from the interview:

1. Amid rising coronavirus cases, how do you see Indian share markets shaping up in the next 6 months?

The stock markets are unlikely to have a smooth ride. Currently, the wave of liquidity unleashed by the US Federal Reserve and other central banks has created a mini-bubble in the equity markets. Many markets including US Markets have already bounced back to all-time highs as if the COVID-19 crisis never took place. We could see another round of selloff subsequent to the second-quarter results and as people realize that recovery post lockdown will be slow.

2. As we emerge from lockdown, what 3 things are worrying the markets and dampening the investor sentiment?

Right now investor sentiment is buoyant. However, going forward low consumer confidence could dent demand in the economy and with the state and central government finances in distress, we will see a reduction in the capital expenditure cycle. Most companies have cut down on their Capex plan and that will also affect the growth of the economy. Investor sentiment will also be dented due to significant job losses and salary cuts.

3. Where are investors betting on during volatility amid this pandemic?

Currently, investors are betting on the Pharmaceutical sector where growth is coming back after several years as companies get new product approvals and the FDA related manufacturing plant issues get resolved. The other sector is FMCG where demand destruction is likely to be the least.

4. With a bumper listing of RIL partly paid up rights shares, how much return on investment do you think these shares could give in the next 9 to 12 months?

The next 9-12 months could be tough for Reliance Industries shareholders given the near term performance of the stock. The refining and petrochemicals business is under deep stress and the new businesses of Jio Platforms are also in an investment phase. Most positives seem to have been already built into the stock price.

5. Considering penny stocks as highly volatile and risky, what are your views. Should investors bet on these stocks?

No, as the risk-reward is normally not worth it in these stocks. There are periods of sharp rises and then sharp falls and smaller companies will have a greater impact on their businesses and profitability post COVID-19.

6. As RIL inks 10 deals in two months, what does it mean for Reliance Jio?

It means that the company can invest for growth. However, the success of Jio Platforms is yet to be seen as they are not entering a segment which is raw. Entrenched players already dominate the space and the advantage of the stressed competition that they had during the telecom foray will not be present here. It will be interesting to see what they can achieve.

7. How should investors invest in these volatile markets? What are the key triggers and risks going ahead?

Investors should recognize the risks associated with the markets at this stage. There will be repercussions of business shutdowns, job losses, salary cuts, growing unemployment etc. Stock markets will need to recognize this at some stage. How long they will ignore growing economic uncertainties and a reduction in longer-term growth outlook is something that we need to see. The worst example of cheap money driving up markets unsustainably was seen in 1999. We are not at that stage as of now but there is excessive optimism on revival post the downturn which is not backed by analysis. Triggers will be faster than expected revival and a possible vaccine or strong drug to treat COVID-19.

8. Which sectors do you think are well-positioned and which are in tight spots?

Financials and Capital Goods companies are in the right spot right now. FMCG, Telecom and Pharmaceuticals have positives going for them but some part of this is already factored into the current valuations.

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