Currently, the momentum is restricted to specific sectors such as pharma, IT and FMCG. Investors must go for a stock specific approach and take an informed decision
By Prem Prakash
An unprecedented increase in COVID-19 cases is expected to disrupt India’s economic recovery, but the overall impact would be less severe than last year. The degree of economic damage during the second wave will be determined mainly by how quickly the infection chain can be broken and how quickly more and more people can be vaccinated to lead the country towards a ‘herd immunity’.
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In a recent statement, the rating agency CRISIL stated that the effects on industrial production during the second wave would be less severe than the destruction seen in 2020. Nomura, a Japanese brokerage company, has also stated that market activity has decreased, but this would have a minor effect on the economy. IIP has grown 22.4% in March which is partly on the account of low base, however, the data is still better than expected.
Another big factor to watch out for is the pace of vaccination drive by the Government of India. While the government is working hard to vaccinate as many people as possible, the public is concerned about potential shortage of vaccine and other health facilities and hence, it will be a very important factor to see how the government deals with supply side constraints.
At present, another big worry is of rising inflation in the US, which could lead to earlier than expected tightening measures by the Fed. If that happens there would be pressure on the foreign inflows and the market might struggle for next 3 to 5 months to trade higher and might trade sideways. Once there is good amount of progress on all the factors i.e. inflation, containment of second wave, vaccination programme, easing of lockdown restrictions etc, we might see markets reaching new highs.
Nifty support in CY21 at 13,600, Bank Nifty at 29,000
The short-term support levels for Nifty and Bank Nifty will be 14150 and 30400, respectively, while 15050 and 36500 will be resistance levels. While for the complete CY21, the support for Nifty is placed at 13600 and for Bank Nifty it is placed at 29000.
The global indicators are relatively strong, but the domestic cues are not in line with the global cues. As the number of cases of COVID-19 continues to rise, a vaccination campaign is the only way to combat this. Currently, the momentum is restricted to specific sectors such as pharma, IT and FMCG. Investors must go for a stock specific approach and take an informed decision. Any dip is an opportunity to invest in these conditions, but investors should focus on sector & stock-specific picks.
Given that Indian equities were traded at all-time highs, investors should reassess their portfolios by taking profits in stocks that have delivered better-than-expected returns and wait for market dips to reinvest the proceeds, especially in sectors such as pharmaceuticals, information technology, and fast-moving consumer goods.
Stocks to buy
1. Coromandel International
BUY, Target: Rs 850, Stop loss: Rs 720
The stock has found support around the 711 level, which also happens to be the same level as a previous intermediate low from October 2020. On the weekly charts, this indicates a double bottom pattern. We recommend buying the stock above Rs 775 for the target of Rs 850, keeping a stop loss at Rs 720 on a closing basis.
2. Aarti Drugs
BUY, Target: Rs 950, Stop loss: Rs 695
Over the past few months, Aarti Drugs has been consolidating in a range of 620-808. The stock broke out of this range last week on above-average volume, indicating that the uptrend would continue. The stock is trading above the 20-day and 50-day simple moving averages, indicating that technical indicators are positive. We recommend buying the stock above 800 for the target of Rs 950, keeping a stop loss at Rs 695 on a closing basis.
3. Mphasis Limited
BUY, Target: Rs 2,020, Stop loss: Rs 1,765
Strong volume, more than three times the 50-day average volume of 5 lakhs shares per day, supports the breakout beyond the previous three-month range, indicating greater participation in the trend’s direction. The daily 14-period RSI has built a higher base above its nine-period average and is resuming its upward trend, indicating that the positive bias. We recommend buying the stock above Rs 1850 for the target of Rs 2020, keeping a stop loss at Rs 1765 on a closing basis.
(Prem Prakash is CEO at CapitalVia Global Research. Views expressed are the author’s own.)