Defensives are the new favourites since they’re likely to be the least impacted in an economic slowdown, inevitable in the wake of the pandemic.
Fuelled by rallies in FMCG, pharma and auto stocks, India’s markets have rebounded 20% from their March lows; the Sensex has added 5,178 points in the last 12 sessions or Rs 19 lakh crore of investor wealth. To be sure the sentiment at home has been boosted by a smart comeback in global markets; the Dow has surged a smart 27.57% from the low of 18,591 points it hit on March 23 while the Nikkei is up 15.46%.
After pulling out a record $8.4 billion worth of shares in March, foreign portfolio investors (FPI) are nibbling at the markets having bought stocks worth $339 million in April so far.
That’s probably because the sharp correction has narrowed the valuation premium that India enjoyed over peer markets. The Nifty 50 now trades at a one-year forward earnings multiple of 14.14X — a 16% discount to its five-year average. The Kospi now trades at 10.76X while the Jakarta Composite trades at 11.4X and Brazil’s Bovespa at a multiple of 11.14X, Bloomberg data showed.
Defensives are the new favourites since they’re likely to be the least impacted in an economic slowdown, inevitable in the wake of the pandemic. The Nifty Pharma and Nifty FMCG have gained 36.7% and 24.9% respectively since March 23 while the gauge for bank stocks – Bank Nifty has surged 17.7%.
Experts say markets across the world are showing some sign of stability, as governments have taken measures to mitigate the financial fallout from the virus and the fall in oil prices was arrested on Thursday with Russia and Opec agreeing to production cuts. Gopal Agrawal, head-macro strategy, DSP Mutual Fund, believes markets, in India and overseas, have achieved some stability owing to the measures taken by central bankers.” Additionally, there is some sense of stability that has also been achieved in the crude oil market. The fall in crude oil prices had led to a credit crisis in the market,” Agarwal observed.
Experts are still grappling with the impact of Covid-19 attempting to gauge the financial spillover across sectors. China’s experience has shown that the consumer staples sector remained the least impacted by the lockdowns. Moreover, autos could also be a beneficiary once the world emerges from this crisis, as people may opt for personal mobility than public transport in India.
Attributing the recent rise in the market to some buying by FPIs, UR Bhat, director, Dalton Capital Advisors (India), says, “In bear markets, there is always a steep fall and then there is a bounce-back since market participants generally overdo the selling and realise, at some stage, that it is time to buy. The problem is probably going to be more severe than what is currently assumed and the impact on the economy is likely to be quite severe.” Experts also believe that with a semblance of stability returning to the oil markets, Sovereign Wealth Funds of countries dependent on crude oil have stopped selling risk assets.