Historically, stocks from sectors such as consumption and IT generally bounce back, but 2020 could be different
The Indian market has recovered more than 30 percent from the lows recorded on March 24 but we are still in a bear market. In the past, it was noted that stocks from sectors such as consumption and IT bounced back after falling during bear market.
Since COVID-19 has brought lives at the brink of a change there will be a new normal in the world. So does that mean the list of defensives could be different in 2020?
Comparing 2008-09 and 2020, market corrections in both eras were severe and the similarities end there. The reasons for the market correction in 2008-09 were different from what they are today.
The 2008-09 market correction had its genesis in banking and its excesses while the 2020 fall is due to a medical problem and its aftermath, say experts.
“The after-effects of the 2020 pandemic would be lasting longer, our outlook would entirely change. Our way of life would entirely change post the pandemic. There would be certain sectors like Telecom or Healthcare/hygiene which would have taken more precedence in our life than others like leisure travel,” Rajesh Palviya, Head - Technical and Derivative Research, Axis Securities told Moneycontrol.
“Probably work from home would become a new normal and people would prefer to travel in their own vehicles, shunning public transport, which could increase demand for passenger vehicles,” he said.
He further added that with WFH, or work from home, becoming a new normal, demand for consumer durables would be higher, and accordingly, the focus would shift depending on the earnings growth trajectory.
Deepak Jasani, Head Retail Research, HDFC Securities said that if we look at the past large falls, sectors that got hammered badly in the fall start to recover the most.
“Hence, cyclical sectors like metals, realty, power, oil & gas, PSU and some defensives like pharma did well in the up move in the past post formation of a long-term bottom. In 2020 we have to add financials to that list,” he said.
Here is a list of seven defensive stocks from various analysts that could be good bet based on technicals from a short to medium term:
Expert: Vikas Jain, Senior Research Analyst at Reliance Securities
The stock has completed its 8-week corrective phase both price-wise as well as time-wise and is now trading sideways to positive over the past few days.
On the lower side, the stock has witnessed large volumes with positive price pullbacks and we believe that the stock will again resume its uptrend. Investors can hold on to a long position that can be initiated for a target of Rs 2450, and a stop loss of Rs 1850.
The prolonged consolidation and huge underperformance could reverse as the stocks seem to have completed its time-wise correction.
Multiple support levels are placed in the range of 630-640 levels which will offer a good risk-to-reward ratio from current levels.
Daily RSI is trading above 60 levels indicating a bullish set up for the stock having an upper hand. Thus, for trade, a long position can be initiated for the target of Rs.830 with a stop loss below Rs 620.
The stock has retraced back from its long-term averages after a correction from the highs of 515 levels in the last one week.
The sector is in a strong uptrend as it is forming higher highs, and higher bottom on the weekly as well as monthly charts which confirms a strong move in the coming months.
The stock on the daily charts has also crossed its 34-month average with strong volumes leading to a breakout from the congestion zone after a long period.
Thus, traders could look at initiating long positions for the target of Rs.590, and a stop loss can be placed below Rs.415.
Expert: Rajesh Palviya, Head - Technical and Derivative Research, Axis Securities
The stock is trending up forming a series of higher tops and bottoms indicating a strong uptrend is in place. On the monthly chart, May 2019 stock is trending up, following the "Up-Sloping Channel" which signals a positive sign.
The stock is well placed above its important 50, 100 and 200-Day Moving Average which reconfirms the rising trend and upside momentum ahead.
The stock has decisively broken out from its 13-year consolidation range at 500 levels and sustaining above the same. This breakout was also accompanied by huge volumes representing increased participation.
The stock is well placed above its important 50, 100, and 200-DMA which reconfirms the rising trend and upside momentum ahead.
The stock has registered an all-time high around 350 levels representing bullish sentiments ahead. On the monthly and quarterly charts, the stock continues to scale upwards in a series of higher-top and bottoms representing bullish sentiments.
The stock is trending up along with the rising 50, 100, and 200 MA which remains a positive signal
Considering the past three months of the strong up move, the stock has decisively broken out from its past five years down sloping trend line at 800 levels indicating trend reversal to the upside.
The stock is well placed above its important 50, 100, and 200-DMA which reconfirms the rising trend and upside momentum ahead.
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