Besides, rising COVID-19 cases in India, as well as the possibility of the second wave in other countries, will remain a major concern for markets. In such a scenario, the strategy would be to invest in sectors such as consumers, healthcare, telecom and selected stocks in Banks/BFSI sector.
BSE Sensex and NSE Nifty 50 have rallied 40 per cent from March lows, largely driven by overwhelming liquidity worldwide. However, rising coronavirus cases in India and elsewhere would limit further upside in the markets, says Ajit Mishra, VP-Research, Religare Broking. As the world fears the second coronavirus wave, there is huge uncertainty related to the virus which is increasing nervousness amongst investors. In an interview with Surbhi Jain of Financial Express Online, Mishra further explains that the IT sector will be impacted in the near to medium term after the US President’s comments on H-1B visas and foreign visas. In order to earn good returns, he advises investors to focus on consumers, healthcare and telecom sectors which have been less impacted during the coronavirus-induced lockdown. Here are the edited excerpts from the interview:
Q1. As the US President suspends H-1B visas along with other foreign work visas till December 31, what is your outlook on the IT sector? Which stocks do you think investors should add in their portfolio?
As IT companies are the largest beneficiaries of the H1B visa and have their major client base in the US, we believe that the sector revenue is likely to get impacted in the near to medium term with the suspension of H-1B visa till December 31, 2020. Though the IT firms have been reducing their dependence on H1-B visas and other visas by hiring locally but that too is impacting the company’s performance due to high employee cost and also some compromise on required skill set. Having said that, we remain optimistic about the IT sector and suggest sticking with IT majors such as TCS and Infosys which have the potential to sail through difficult times and have stable growth prospects for the long term.
Q2. How do you see the Indian telecom sector in the next 10 years, now that it’s down from more than 10 industry participants to just three after Jio’s commercial launch?
The Indian telecom industry has seen a massive consolidation, from several players to 3 private and 1 PSU currently. Going forward, we believe the resolution of Adjusted Gross Revenue (AGR) dues will be deciding factor on the future of telecom sector and especially for Vodafone Idea as the company had shared its inability to pay the dues all at once and asked the apex court to allow making stagger payments over 20 years. In the latest development, the SC granted time to DoT till July third week to consider the payment proposal by telcos. Amid all, we believe the consolidation phase is largely over for the industry and the focus would now be on penetrating 4G services across India and capitalizing on the user base to sell other services.
Q3. Why is it that the world’s best investors along with private equity firms are buying an equity stake in Reliance Jio?
The COVID-19 pandemic has disrupted practically every industry, however, in the midst of all this, there have been companies in the consumer tech space which have been least affected and some have even benefited from the pandemic. Further, in the post COVID world, the consumer preference towards digital/consumer tech would see a considerable increase. On the global front, we’ve witnessed noticeable traction towards large consumer tech giants like Facebook, Apple, Amazon, Netflix and Google and it reflects in their stock prices too. In India, we do not have large companies that are pure-play consumer tech firms and Reliance Jio is the closest one having a large customer base providing consumption services. As a result, we’re seeing investors queuing for a stake in Reliance Jio.
Q4. Nifty Auto index gained over 40% since lockdown restrictions have been eased in April, is it the right time to bet on auto stocks?
It is advisable to be selective in the auto space as we believe the recovery cycle across segments would different. Given the minimal impact on the rural economy due to lockdown and normal monsoon forecast, we believe two-wheelers and small size PVs would be one of the first ones to bounce back. However, recovery in CVs would take a while due to on-going economic slowdown and price increase due to BS-VI implementation. We thus suggest preferring stocks like Escorts, Bajaj Auto, Hero Motocorp, M&M and Maruti Suzuki. Given the recent up move in these stocks, buying on dips would be advisable.
Q5. With Sensex, Nifty up 40% from their March lows, where do you see them going in the next 6 months?
The current rally is largely driven by overwhelming liquidity worldwide. However, fundamentally for the economy, while the recovery trends shown across sectors are encouraging, it is still considerably lower compared to last year. After the recent surge from the March lows, we believe the upside would be limited for markets unless there are meaningful signs of revival in the economy. Besides, the COVID situation will also have a major role to play.
Q6. What should be investors’ strategy while investing in share markets? What are your preferred sectors?
We advise investors to maintain a positive yet cautious approach, after the substantial rise in the last three months. Besides, rising COVID-19 cases in India, as well as the possibility of the second wave in other countries, will remain a major concern for markets. In such a scenario, the strategy would be to invest in sectors such as consumers, healthcare, telecom and selected stocks in Banks/BFSI sector which were less impacted during the lockdown. With the easing of the lockdown situation and unlock-1 coming to effect, we continue to see healthy buying interest for the products and services in these spaces. We thus recommend stocks such as Hindustan Unilever, Bharti Airtel, Britannia Industries, Cipla, Biocon and Dabur India, HDFC Bank, ICICI Bank, Asian Paints and HDFC life Insurance for investment with long term horizon.
Q7. As investors fear the second wave of coronavirus, how do you think global markets will react to it?
Investors’ confidence started to boost on the hopes of the opening of economies which led to the rally in the global markets. However, the scare of COVID-19 pandemic is far from over as many countries started to report new cases because of easing of lockdown restriction and change in weather conditions which we believe might have enhanced chances of the second wave of the virus. Investors fear that the second wave would hit harder on the economy, further dampening growth as well as job losses. However, there is huge uncertainty related to the virus which is increasing nervousness amongst investors. Besides, global markets have started factoring the same of late which has led to some profit booking and fresh downside risk and volatility in the market cannot be ruled out.