'Banking & financial may lose leadership status in next bull run'

We may see a spate of bad loans across banks and investors should wait and watch for 3-4 quarters for the dust to settle down. We believe, 2-3 of the stronger banks would remain in the limelight but the sector, on the whole, may lose the leadership status in the next bull run," Ajay Jaiswal, Stock Market Strategist said in an interview to Moneycontrol's Sunil Shankar Matkar.

Edited excerpt:

Q: Do you expect the market to get back to all-time high again by end March 2021 if the COVID-19 situation eases by June quarter? What are your thoughts on the market movement for the next year?

Expecting the market to go back to previous high levels by March 2021 is like expecting a V shaped recovery which is very unlikely. The current crisis is very different to the ones we have seen in 2008 or during the past 25 years. The global pandemic has led to financial crisis and crisis of confidence across many industries.

Some of these industries like aviation, hospitality and restaurants, travel and tourism, spas and saloons and host of others would take 3-4 quarters to normalize even if the COVID-19 eases by June quarter. Some of these businesses are likely to see a prolonged slowdown beyond the period mentioned. The market is likely to adjust to new normal for the next 12 months and Nifty is likely to trade between 10,500-7,500 for the next 12 months.

Q: Banking and financials also participated in the recovery seen from March lows with Nifty Bank and Financial Service indices rising 27 percent each. But do you feel the recovery is really backed by fundamentals because some analysts worried about expected NPAs after the end of lockdown? Also do you think the sector will lose its leadership position in next bull run?

Banking and Financial Sector has seen significant damage in the recent fall in the market due to COVID-19. The sector was holding up its rally led by a few well managed and well capitalized banking names otherwise some of the banks even in the private banking space were facing relentless selling due to mismanagement and corporate governance issues. The rally from recent low levels is unlikely to hold on to gains as the sector is badly affected due to lockdown and it may take 3-4 quarters to get into normalcy.

We may see a spate of bad loans across banks and investors would wait and watch for 3-4 quarters for the dust to settle down. We believe, 2-3 of the stronger banks would remain in the limelight but the sector on the whole may lose the leadership status in the next bull run.

Q: Pharma has been star performer in last one-and-half-month period, gaining 45 percent, the biggest than any other sector or index. Do you think the rally is sustainable going ahead?

Pharma has outperformed the broader market over the past 2 months on expectations of a lenient FDA post COVID-19 and also on expectations of India likely to gain on API and contract manufacturing after backlash on China post COVID-19. Going forward the sector may see only selective stocks doing well and may not be a sector participation in the next leg of the bull market.

Q: Technology stocks also participated in the run with Nifty IT index gaining 26 percent from March lows. But given the weak outlook by large IT companies and Infosys suspended its guidance on uncertainty ahead, do you still think these stocks will continue their upside in coming months?

The technology sector is likely to remain rangebound between the lows of recent sell-offs and highs post-sell-off. There is a number of uncertainties related to the sector and historically the sector has remained subdued before US presidential elections. There is many moving parts that the sector may have to adjust before giving clarity in businesses that it caters to.

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

The current state of affairs of Indian economy doesn't warrant rigidity on the fiscal front. India has over the years has managed to maintain its fiscal within targets despite several headwinds foregoing the much needed growth. COVID-19 related lockdown has led to unemployment across sectors and the business sentiment is battered in a way that private investment is unlikely to come by. In such conditions that Government has to let the fiscal string loose. It is expected that the Government may take bold measures to revive the economy through fiscal measures.

Q: FMCG segment was expected to be strong given the demand for essential services during lockdown, but HUL earnings did not show the same picture, in fact the volume growth contracted 7 percent. Do you think FMCG sector will also report weak earnings going ahead?

FMCG sector volume is likely to register degrowth for at least 3-4 quarters across segments. The combined action of low income, joblessness, change in consumer behaviour towards premium products – will be the key factors for degrowth In the FMCG sector. FMCG companies are likely to underperform in anticipation of weak earnings going forward for at least 3-4 quarters.

Q: If key sectors are expected to do bad, then what are those sectors left which can outperform in current lockdown and going ahead?

We are unlikely to see sector specific upward movement in the Indian market for next 3-4 quarters. Value investing will dominate over as growth across sectors would remain tepid. However, inorder to get jobs back on track the Government may expedite policies favouring infrastructure development and manufacturing which may lead to outperformance in MNC manufacturing companies and strong domestic companies.