'Don't expect sharp recovery in April, but these 4 sectors can create new opportunities'

One should not expect any significant recovery kind of rally and we should keep in mind that volatility is going to remain for some more time as we are not yet out of the coronavirus woods, Prashanth Tapse, AVP Research at Mehta Equities said in an interview to Moneycontrol's Sunil Shankar Matkar.

The threat of earnings cuts, lower GDP numbers, lower GST and IIP data will be a big hangover on the market in the coming few months which will keep the equity market under pressure, he added.

Edited excerpt:

Q: March was the worst month for equity markets in terms of return (down 23 percent) as well as FII outflow (over Rs 65,000 crore) in FY20? Do you expect some kind of recovery in April?

Prashanth Tapse

Associate Vice President (Research)|Mehta Equities

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Indian equity markets have corrected significantly over the last one month in tandem with global equity markets due to headwinds from the COVID-19 outbreak across multiple countries.

The current environment is very challenging and uncertainty has played in markets, with the difficulty predicting what comes next? A relief recovery or yet another month of volatile markets.

So one should not expect any significant recovery kind of rally and we should keep in mind that volatility is going to remain for some more time as we are not yet out of the coronavirus woods. The threat of earnings cuts, lower GDP numbers, lower GST and IIP data will be a big hangover on the market in the coming few months which will keep the equity market under pressure.

So in this kind of situation, there is no need to jump in and say it is a bottom fishing kind of opportunity.

Q: What should investors do now with respect to their portfolio? What is your advice to your clients?

We note that such a significant correction opens up equally significant investment opportunities as well as one should keep in mind that recovery will take its own time.

For Investors: We advise investors should focus on phase-wise investment strategy, as it is very difficult to gauge when will markets stand at bottom levels but given the favourable risk-reward situation investors need to take a long term vision and keep on accumulating high-quality stocks at every such decline.

For Traders: For a trader, current market volatility provides trending opportunities in tandem with global equity markets. Nifty index has formed a Bearish Belt Hold pattern which we have seen for the seventh straight week when the index ended up with a bearish candle on the weekly chart and we assume the near-term trend remains negative, with the immediate support seen at the 8,000 level and immediate resistance is seen near 8,350 level.

We also see a high possibility of 7,800 levels in the coming months.

Nifty needs to sustain between 7,800 and 8,000 levels in the current leg of fall. In case it closes below 7,800, the weakness opens up more downsides. While if the index surpasses 8,660 on a closing basis, then there could be a little bit of confidence, till then we advise traders to sell on the rise as a preferred strategy.

Q: As valuations turned more attractive, what are your top five fundamental bets that can become multibaggers by next year?

Stocks are HDFC Life, Granules India, TCS, ICICI Bank, and Mahanagar Gas.

Q: Banking and financial services have taken a huge beating in the market turmoil due to worries over likely NPA pressure after lockdown. Your thoughts?

Yes, I do agree that the Coronavirus pandemic disproportionately impacted Indian Banking and financial services space. Banks and allied financial services are considered as a sensitive backbone of the real economy or lifeblood of the country's economy, hence so far banking and financial services space has been the worst hit and it has been battered heavily as investors expect the crisis to hit businesses and incomes, leading to a spike in non-performing assets.

Recent fall has eroded investor confidence in financial markets, leading to a plunge in banking and financial services stocks globally and Indian markets have been no exception, and the mayhem has eroded more than 45 percent off from index highs on a year-to-date basis.

Q: After welfare measures by government and liquidity measures by RBI, do you think the government or RBI will announce more measures in coming days to support the economy, companies etc?

RBI is working proactively to coverup the virus pressure on Indian business houses, after a series of emergency measures like cutting interest rates to a record low, boosting liquidity and ordering a moratorium on loan repayments to counter the economic pain inflicted by the coronavirus pandemic. We expect such more reforming measures in coming weeks looking at the spread of the virus and effecting industries.

Q: Some experts feel every major economic crisis creates new opportunities of stocks/sectors apart from regular ones. What should be those opportunities/industries to attract investor interest?

We assume innovation has always thrived in hard times, hence we would foresee sectors - Healthcare, Clean Energy, Digital Platforms and Pharma - can create new opportunities.

Q: Do you think the COVID-19 will drag the global economy into deep recession kind of environment despite stimulus packages? Also what about India's economic growth in FY21 given the welfare and liquidity measures?

COVID-19 has meaningfully impacted the global economy and in order to counter the pandemic amid forecasts of a deep recession, G-20 nations have indicated they will be injecting $5 trillion into the global economy. All stock markets performance reflects the economic situation of country and the recent fall is already shaping up as the deepest dive on record for the global economy for over 100 years. Now everything depends on how long it lasts, but if this goes on for a long time, it’s certainly going to be the mother of all financial crises. But one thing is for sure: this is not permanent.

Indian economic growth has no exemption with the effect of COVID-19 due to weaker private consumption and a contraction in investments, and higher government consumption. Risks to the forecasting the effects would be tough, given that the COVID-19 outbreak in India is relatively low number and appears to be just beginning especially considering that India is the world's second-most populous nation with a population of over 130 crore. We forecast an uncertain medium term outlook and long term outlook would be healthier when compared emerging economies.