As frontline indices – the S&P BSE Sensex and the Nifty 50 – fall by more than 35% from their peak levels given the endemic spread of the coronavirus (Covid-19) pandemic around the world, most analysts remain cautious on the road ahead for the markets. . In the future, they believe that markets will follow developments related to the growing fear of health and how effective can governments be to combat it.
That said, they believe that long-term investors with an appetite for risk and those who can digest volatility can start to nibble on stocks given the attractive valuations.
So what should your stock market strategy be? Is it better to allocate more funds to the defensives or look for names with high beta that can offer good returns once the markets recover?
While JP Morgan believes that “money is king” given the uncertainty that awaits us, selective long-term purchases can be made in defensive games. Before investing, investors should carefully assess companies and place money only in the stocks of companies with strong balance sheets and earnings visibility despite the fear of Covid-19 health, they suggest.
“The backdrop of a liquidation across asset classes driven by fears of COVID-19 means that our strategy is defined with the main objective of capital preservation with cash on hand until what volatility decreases. We would be selective buyers in Indian stocks, although with a defensive bias. Our favorite industries are consumer staples, healthcare, large private sector retail banks and public services, “wrote Rajiv Batra, Kevyn H Kadakia and Sahil Dhingra of JP Morgan in a recent report.
At the same time, most agencies, including Moody’s, have lowered their forecasts for economic growth in India, measured by gross domestic product (GDP) for the 2020-21 fiscal year (FY21). Fitch Solutions cut its estimate of India’s GDP growth in 2020-21 to 4.6% on Monday due to lower private consumption and shrinking investment amid an epidemic of coronavirus.
Moody’s Investor Service (Moody’s), on the other hand, has lowered its economic growth forecast for India to 2.5% for calendar year 2020 (CY20) even as it expects growth to rebound to 5.8% in 2021 (CY21).
Saion Mukherjee, managing director and head of equity research in India at Nomura, expects markets to remain volatile in the short term. The spread of COVID-19 cases in India, he said, and the impact on the economy in general and short- or medium-term profits will keep markets volatile.
“Basically we find the market valuations attractive after the recent intense sale. In the short term, should the COVID-19 outlook in India improve, we expect a rebound in high beta sectors such as financials which underperformed in the fall, “wrote Mukherjee in a recent report co-written with Neelotpal Sahu.
Nomura remains overweight for one year in certain financial, oil and gas and healthcare sectors. They downgraded the underweight infrastructure and cement; and are also underweight in automotive, consumer and IT services. Reliance Industries (RIL), ICICI Bank, Axis Bank, Dr Reddy’s Labs and Lupine are their best “ bought ” choices.