As India goes back under another lockdown till May 17, FMCG, retail and pharma sectors are likely to witness upticks in the demand.
The headline indices BSE Sensex and Nifty 50 gained 20 per cent in the month of April supported by a host of factors such as quarterly earnings, stimulus package, relaxation in lockdown, emergency rate cut by Reserve Bank of India (RBI) and encouraging results from a Covid-19 treatment trial. Domestic benchmark indices have risen 30 per cent each from their 52-week lows, however, are still 20 per cent off their record high levels touched during the start of the calendar year 2020. As India goes back under another lockdown till May 17, Ajit Mishra, VP – Research, Religare Broking Ltd, believes that after the lockdown is over, FMCG, retail and pharma sectors are likely to witness upticks in the demand. Here are the excerpts of Ajit Mishra’s interview with Surbhi Jain of Financial Express Online.
1. Sensex, Nifty gained over 30% from their March lows, do you think volatility has been subsided?
The rebound in the benchmark indices has certainly relieved the participants and the volatility has also subsided significantly in the last month. However, it’s too early to assume that the worst is over. Nifty is inching closer to the 50% retracement zone i.e. 9970 of this entire fall (i.e. from the record high of 12430.50 to the low of 7511.10) and that would act as a critical area for the next directional move in the index. At the same time, we do not expect volatility to fade away completely anytime soon, thanks to the on-going earnings season. Besides, the news update related to COVID-19 will continue to trigger erratic swings across the globe.
2. With the relaxation in lockdown with a new set of guidelines, which sectors do you think have potential to pick up?
We believe sectors such as FMCG, retail and pharma could be one of the first ones to witness pick-up in demand given that the supply chain issues would ease throughout the country and availability issues of products would reduce. Further, the government has also planned to restart construction activities in districts in the green zone so we may see some respite in the infrastructure and cement sector as well.
3. What are the upcoming major triggers for the markets and how should investors trade?
The investor expectations are high of another stimulus package from the government and therefore any announcement would be actively tracked. Another factor to watch out for would be the prevailing result season, we believe that more than the result announcement, the commentaries by the management would hold importance for traders and investors. Coming to global factors, easing of lockdown and further updates on drug trials will also be closely tracked by the market. We advise participants to avoid naked trades and prefer hedged bets. Also, they should focus more on stock selection and align their positions in line with the trend.
4. Pharma index is on fire, it has gained 40% in a month. Do you see buying opportunities in the pharma stocks? What are your top stock picks from Pharma pack?
Pharma stocks were underperforming due to pricing pressure in key markets and firm regulatory requirements for the last several years. However, due to the outbreak of Covid-19, the rise in demand for a few essential drugs gave a needed boost to the sector. Further due to extended lockdown, along with other sectors, pharma companies are also facing challenges wherein factories are working with less manpower as well only producing limited drugs. Nonetheless, we believe the pharma sector is one of the least affected in the Covid-19 situation and strong demand for essential drugs would aid growth for the companies. We would advise investors to buy stocks such as Cipla, Pfizer, Biocon and Dr. Reddy’s Laboratories in a staggered manner for healthy gains over the long term.
5. How will RBI’S special liquidity facility boost the mutual funds?
RBI has opened a special liquidity facility for mutual funds (SLF-MFs) of Rs 50,000 cr to provide liquidity to the struggling debt mutual funds. The funds availed by banks through this would be used exclusively for extending loans to MFs. We believe it’s a step in the right direction as it would inject some liquidity for MFs as redemption pressure is expected to intensify after the Franklin Templeton fiasco, particularly in the high-risk debt segment. However, as per the reports, banks till now have borrowed a very small amount (the scheme is open till May 11, 2020) under the SLF and it’s an indication that banks are hesitant in lending to funds with exposure to lower-rated instruments, which are facing liquidity constraints. We feel it is important that banks fully participate in these repo operations for the scheme to be successful, which would lead to easing off redemption pressure to a certain extent going ahead.
6. Sensex, Nifty still 20% off from their record highs. What is your near to medium-term outlook?
Honestly, it’s very difficult to make a decisive view on markets, at least for short to medium term as a lot depends on how the coronavirus situation would pan out in the coming months. Besides, we’re not alone in this as almost the entire world is struggling with this pandemic and investors are maintaining cautious stance world over despite the recent rebound and awaiting clarity on the possible cure of the virus and life after lockdown. In short, until there are clear signs of the economy coming back on track, we might not see a sustainable move. Amid all uncertainty, we feel investors should use this phase to gradually accumulate quality stocks on dips while maintaining a long term investment horizon. term view.