The market also believes that with social distancing becoming a normal part of our lives, demand for personal transportation will increase.
Even as Indian share market benchmarks BSE Sensex and Nifty 50 are over 30 per cent up from their March lows, volatility is likely to persist owing to various factors, says Naveen Kulkarni, Chief Investment Officer, Axis Securities. He further elaborates that despite a catch rally in the last week of May, its sustainability remains questionable, as it is more likely to depend on the government’s future actions for the revival of the economy battered by the coronavirus- triggered lockdown. In an interview with Surbhi Jain of Financial Express Online, Naveen also explains the Indian stock market’s trajectory from the current levels and important triggers that will sway the investor sentiment. Here are the edited excerpts.
1. Indian stock market oscillated and now it’s over 30% from March lows. Do you think volatility has subsided?
There is one thing which can be assumed with some degree of certainty and that is, volatility will persist. There are so many variables in play like pent up demand, labour dislocation, moratorium impact, valuations, unemployment, fiscal deficit and currency fluctuations. The movement of many could be adverse and some are likely to be better. Thus, markets are very likely to remain volatile.
2. Pharma, FMCG were the only sectors to deliver positive returns on a 3 months basis. Where do you see these sectors are headed? What are your top picks from these sectors?
These sectors will provide reasonable returns for shareholders as they offer a consistent revenue profile and prospects of improvement in business in forthcoming quarters. Our top ideas are Biocon, Britannia Industries and Varun Beverages Limited.
3. Despite zero sales in April, Nifty Auto gained 12% in May. What are the possible reasons behind this rally in the sector?
Opening up of the economy and expectations of pent up demand in the sector. The market also believes that with social distancing becoming a normal part of our lives, demand for personal transportation will increase. Apart from these factors, Autos offer a good beta alternative compared to the BFSI sector which had been under stress for the month.
4. What are your views on consumption stocks? How do you see them in six months from now?
Consumption stocks should see improvement in performance but it will be a mixed bag across the sector. Staples and small ticket discretionaries should perform better while the large ticket items will be under stress. We believe staples will continue to perform well and gain ground with each passing quarter.
5. BSE Sensex gained 22 per cent in April and May. Where will markets go from here? What are the key triggers on cards?
The markets are more likely to take a breather as valuations are at mean levels and catch up in most sectors has already played out. From here, the pace of recovery and operating performance should have an impact on the markets. There will be challenges in significant improvement in the operating performance post the pent up demand playing out. The key triggers will be the corporate management commentary for June and July.
6. How has been Indian share market performance vis-a-vis other global markets? In the coming months, is India going to catch up with the global rally or will remain a laggard?
India has seen catch rally in the last week of May. Even in the month of May, India has underperformed in most of the global benchmarks. If the catch-up rally would not have come by the last week of May, the underperformance would have been even more significant. Even as the catch rally gathered some steam at the beginning of June, the sustainability is still questionable at this juncture and it will depend on multiple factors like the pace economic recovery and government actions. In the coming months if the government initiates more reforms then it will help the equity markets as challenges to growth will continue to persist. Demand environment will be very uncertain and demand creation will be very critical. All these factors will need the help of the government. The stimulus package will provide the starter pack for a significant portion of the economy but more will be needed for the creation and sustainability of the demand.