Global cues will continue to shadow Indian benchmark indices this week. Traders should keep an eye out for support levels at 8,700 and resistance levels at 9,200 in the Nifty50, Samco Securities' Umesh Mehta told Moneycontrol.
Banks are expected to face a tough time given the nationwide lockdown and the extension in moratorium, Umesh Mehta, Head of Research, Samco Securities, said in an interview with Moneycontrol’s Kshitij Anand.
Mehta also said that banks' balance sheets will be crippled, which will eventually reflect on their stock price.
Here are the edited excerpts from the interview:
Q. It was a volatile week for Indian markets which started with a gap down, and then towards the close we saw the RBI MPC presser which led to a sharp downtick on May 22 wiping out most of the gains. What was the reason the markets fell — is it banks or the negative growth rate which weighed on markets?
A. After a volatile week, the Reserve Bank of India (RBI) announced a surprise cut of 0.4 percent, which was expected by the Street. However, there was disappointment as there was no mention of restructuring of loans and other supportive measures for banks.
More so, the extension of the moratorium will bring about a fresh bout of NPA cycle if not from this quarter then sometime down the line.
This will affect the banks’ balance sheets and in turn, their profitability. Hence, even though the RBI took a calibrated approach to save the economy, it did not favour the banks which led to the negative impact. The negative growth rate just added to the woes.
Q. NiftyBank fell more than 2 percent on May 22. What should investors do if they have a bank-heavy portfolio? How can they minimize losses? And, if new investors who can take risks, do you think some of the banks are available at reasonable valuations? Many banks are trading near their 52-week low.
A. Banks are expected to face a tough time given the lockdown and the extension in the moratorium. Their balance sheets will also be crippled which will eventually reflect on the stock price.
Hence, it would be safer for investors to avoid banking stocks for the moment at least until the pain has been completely discounted in their books.
Investing in banks just because valuations are cheaper would be an incorrect strategy because if there is minimal to negative growth then the investment bet will not turn out to be successful.
As for investors having a bank heavy portfolio, they should try to diversify by investing in fundamentally strong companies from other sectors to safeguard themselves from acute losses.
Q. What are the important events and levels on Nifty which one should track in the coming week?
A. Global cues will continue to shadow Indian benchmark indices in the coming week. Traders should keep an eye out for support levels at 8,700 and resistance levels at 9,200 in the Nifty50.
Q. Negative growth is something that might have gotten investors worried. Do you advise investors to turn conservative from aggressive in this period?
A. Mutual funds themselves have sold approximately Rs 7,965 crores from equities in April alone — the highest since March 2016. It would be safer for retail investors too to remain conservative as there is more pain left to come in the coming weeks.
Q. Any rate-sensitive stocks which could benefit the most from RBI's surprise rate cut and why?
A. Banking stocks and Bank Nifty are expected to remain sensitive to the RBI’s rate cut move. However, the news has already been factored into the price.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
