Market will see such trading rallies; prefer insurance over healthcare, says Nilesh Shah

The nearly 2,500-point gain on April 7 can be seen as a trading rally in a bear market and while the economic recovery will take some time, the market will see such rallies intermittently, Envision Capital MD & CEO Nilesh Shah has said.

"It is some kind of a pullback. It is something that happens when you are in a bear market. You do see some sharp gains and moves," Shah told CNBC-TV18.

He said it would take a few months for the dust to settle and a clear picture to emerge. It would depend on how India comes out of the crisis and what economic stimulus comes from the government to ensure growth.

"The market will keenly watch economic stimulus, their extent, size and timings that could really decide the direction of the market," he said.

On being asked if the coronavirus outbreak had changed his priority in terms of stocks and how he looked at the healthcare sector, Shah said he preferred health insurance as most hospitals and healthcare plays had tremendous debt on their books and it was essentially capital-heavy business model.

"I think hospital and healthcare play is something which one can avoid for now. The best way to play is to buy general insurance and health insurance companies," Shah said.

"This correction and the episode of coronavirus are likely to make people more conscious of being adequately insured from medical point of view and to that extent that kind of businesses will enjoy strong tailwinds going forward, given that health insurance still has low penetration in India."

There is an apprehension that as it is a trading rally in a bear market there a possibility of a second sharper round of selling as and when the economy wakes up to the real damage of the lockdown.

Will the second round of selling be worse?

Shah does not think so.

"It may not be far worse. I do not think the selling will be more aggressive now because I think that the FPIs, who probably wanted to lighten up and who had gone into a risk-off mode, have essentially sold quite a bit. I am not sure whether the kind of valuation which we are trading at, you will see a sharp selloff from here," Shah said.

He, however, added that if markets were to rally 4-5 percent, some selling could be seen at that level.

Shah said as the quarterly numbers and the macroeconomic data start coming in, the market may retest the recent lows, if not that specific lows than the range of those lows.

As far as the range of the market is concerned, Shah is of the view that it will likely to remain in the 7,500-7,800 range. If the market gets close to 9,000 in a hurry, then there may be some selling.

Shah said some of the consumer product and staples’ companies which were in daily consumption were better buys.