'Govt could roll out fiscal stimulus of Rs 6-8 lakh crore, but unlikely in one stretch'

The government might be stitching long together to cover as many sectors as possible and believe total fiscal intervention could be to the tune of 3-4 percent of GDP (or Rs 6-8 lakh crore) but not in one stretch and spread it in many rounds (smaller package) of measures to respond to the evolving situation," Prashanth Tapse, AVP Research at Mehta Equities said in an interview to Moneycontrol's Sunil Shankar Matkar.

Edited excerpt:

Q: Do you expect the market to continue to rally in May? Also, do you feel it is a bear rally?

We believe high built-up hopes on possible (Rs 2-3 lakh crore) fiscal stimulus and early solution for COVID-19 vaccine pushed markets higher in April-20, while May-20 may not see same kind of rally as timely delayed stimulus can bring more pressure on future growth. Global markets too rallied in the same tandem as many emerging markets like Malaysia, Thailand and developed countries like USA have announced stimulus packages in the range of 10-15 percent of their GDP; while India still awaits a second fiscal package.

Prashanth Tapse

Associate Vice President (Research)|Mehta Equities

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Markets would take back the drive if government does not live-up to the build-up expectations. This uptrend seems to be a short lived and may not be sustainable in coming days.

Q: After rallying 15 percent during April and 32 percent from March lows, do you still advise clients to continue buying quality stocks or wait for stability in the market?

We always believe that in crisis time quality investors should go overweight on quality equities but in staggered manner by investing in companies that will survive the health crisis and by avoiding companies with high leveraging business economics. We consider this economic health crisis is very different from earlier ones in many ways like the fall is more intense and witnessed a sudden drop in business volume and consumer confidence as well.

Hence, we have been advising investors to bring change in their investing as well as trading style as we believe equity markets will react and behave in tandem with global trends until the pandemic reaches a manageable level going forward.

The environment is challenging and uncertainty is been played in markets around the globe, with the difficulty of predicting what comes next a relief recovery rally or yet another volatile markets for short term. Keeping volatility on cards we advise clients to trade in quality businesses with disciplinary profits/losses on books.

Q: What could be major factors to watch out for in May on the domestic as well as global front, and why?

>> Crude oil production data - plan to slash production from May-20.

>> Lower IIP, GDP & GST collections data.

The above factors would be a big hangover on the market in coming few days which will keep equity market under pressure and volatile.

Q: Given the fiscal stress, do you think the government will be able to announce a large stimulus package for the economy and say let the fiscal deficit increase for this year or there could be smaller package?

It is now essential that Government needs to step-up more measures to protect economic fallout, lives and livelihoods. In the current times, the government needs to do everything to stimulate spending and maintain growth as well so that there is no credit crunch between Center and states. Minister of Finance and PMO both are targeting not to disturb fiscal deficit issue and get a way to design stimulus package 2.0.

Now the wait gets longer on stimulus package 2.0 expectations as government plans for larger response compared to Rs 1.7 lakh crore package announced last month. The government might be stitching long together to cover as many sectors as possible and believe total fiscal intervention could be to the tune of 3-4 percent of GDP (or Rs 6-8 lakh crore) but not in one stretch and spread it in many rounds (smaller package) of measures to respond to the evolving situation.

Q: How do you read Tech Mahindra, Reliance Industries and HUL quarterly results, what is your suggestion (buy, sell or hold)?

Tech Mahindra: Q4 profit fell more-than-expected and margin narrowed sharply. Results fell more than market estimated as COVID-19 pandemic stalled economic activity and spending across the globe. Revenue got hit majorly because the segmental mixes compared to peers are different. Tech Mahindra derives its revenues from the BPO segment, especially voice BPO, which cannot be quickly transitioned to work from home due to infrastructure and regulatory constraints. The bigger disappointment we saw was on profitability margin. Overall the numbers did not meet street estimation. Hence we advise traders to book profits around Rs 560 levels. We have sell rating.

Hindustan Unilever: FMCG major missed street estimates reporting a 3.4 percent year-on-year (YoY) drop in consolidated net profit at Rs 1,520 crore for Q4, compared with Rs 1,574 crore in the same quarter last year. Revenue for the quarter fell to Rs 9,055 crore from Rs 10,018 crore in the year-ago quarter. Domestic consumer growth declined 9 percent, with a decline of 7 percent in underlying volume growth wherein street was expecting sub 5 percent decline. Technically it seems Q4 results have been discounted in the markets. One can expect HUL to test sub Rs 2,100 levels in coming days. We have hold rating.

Reliance Industries: RIL also missed street estimates wherein profit plunged 39 percent YoY to Rs 6,348 crore and revenue declined 2.50 percent YoY to Rs 1.51 lakh crore. Despite the daunting challenges arising from the fallout of the global pandemic, RIL has delivered decent numbers even after global oil markets witnessed significant volatility on account of demand destruction and excess supplies.

The roadmap has been drawn for the company to make it a debt-free by March 2021 by announcing India's biggest ever right issue worth Rs 53,125 crore, but the ratio 1:15 share was not expected by street, which may dampen the sentiments on Monday opening. Technically RIL may see an attempt of profit booking at the current levels as it has seen a rally from Rs 890 (March 24, 2020) and Thursday's close Rs 1,466 (April 30, 2020). Sell on rise can be a strategy. We have sell rating.

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