In an interview with Ashwini Kunder Talurmath of Myiris.com Prashanth Tapse, AVP Research, Mehta Equities says, "We believe every step taken by the government to deal with COVID pandemic has resulted in a 'V-shaped' economic recovery and going forward the country is likely to witness double-digit growth in 2021-22."
Interview Excerpts:
1. Markets are reeling under pressure pushing the Nifty below 15,000. What led to the price action?
March 2021 year end volatility was all about window dressing week for large investors. Any upside at Dalal Street is likely to be capped as long as the as the theme is centered around the U.S. 10-year yield raising towards 2% (Exp) from 1.75% and spike in Covid-19 infections which could possibly lead to some disruptions in the economy.
Long story short: Optimism should slightly take off if 10-year U.S. Treasury yields cooling below to 1.5% in coming days and speedy distribution of vaccines can bring more confidence in markets. Overall market would remain under pressure in the near term amidst the concerning theme. Given the ongoing theme volatility would continuing in the market for some time, investors would do well by staying light and gradually accumulating good quality companies on declines in the market.
Technically speaking, perma-bulls looked to buy as Nifty staged remarkable recovery from its biggest support at 14,264 mark (61.8% Fib support level - 29th Jan 2021 low to 16th Feb high). Now from here, only a close below Nifty 14,264 will lead to waterfall of selling with downside risk at psychological 14,000 mark and then aggressive targets at 13,597 (low as on 29th January). Well, if Thursday spectacular closing at Dalal Street is any indication then the Big Bullish Bulls will now aim to reclaim Nifty's biggest hurdles at 15,057 mark.
Expect a beautiful morning on Monday which takes Nifty to its biggest hurdles at 15,000-15,057 zone. Above Nifty 15,057, all bullish eyes will be Nifty's all-time-high at 15,432 mark. So, it makes sense to bet on bullish things in life - especially when stocks are roaring at Dalal Street. Technically, positive bias on Nifty as long 14,621 mark holds as support. Bank Nifty should also zoom towards its all-time-highs at 37,709 mark.
Amongst stocks, ICICI BANK, INDUSIND BANK, PIDILITE and SAIL are screaming buys at this movement!
2. Markets are plunging on account of rising bond yields. What is the connection between bond yields and markets? Do you think there will be serious implications in the long term?
Thump rule is that rising bond yields will lead to outflow of money from emerging markets to source investor country (US) and Indian markets has no excuse to have serious implications. The main reason for surge in bond yields is on the back of economic recovery and stability in the US economy. The yield on the benchmark 10-year Treasury note has moved from 0.91% at the start of calendar year 2021 to 1.75%+ in end of March 2021.
Bond yields are inversely proportional to equity returns, when bond yields decline, equity markets tend to outperform, and when yields rise, equity markets tend to fall. Traditionally when bond yields go up, investors start reallocating investments away from equities into bonds As we all know US is a source of fund flow into equity markets in all emerging countries, including India and a rise in interest rates in the US makes more sense money in domestic bonds lucrative for the country's investors like US. Raising US yields can also cause a depreciation of the rupee and therefore sectors such as Pharma and tech with earnings in dollars can benefit from rupee depreciation. This kind of risk will be part future investing world and hence investors/traders should allocate funds in dollar-linked assets.
3. What will be the impact of Covid-19 on Indian economy? Do you think there will be more pain ahead in the longer term?
Covid-19 related downside risks remain low with continuing vaccination drive could avoid a complete lockdown. India's economy will grow at a faster pace this fiscal year than previously year with low base effect. The economic damage may be far less given the way govt is taking actions and speeding up vaccination which will be the reason to bring back and hold back economy. Challenges that we faced, we converted it as an opportunity for growth. In a nutshell, The Indian economy is indeed awaiting a return back to normalcy in all the sectors and is still not out of the woods as far as fear of the second wave in the country. Nevertheless, the last two quarters have been the best in many years for the large Indian corporates. For many industries, this was a transformative year. Healthtech, Edutech, fintech, OTT, and food tech are some of the core sectors to grow at an accelerated pace in the COVID lockdown ecosystem. Whereas travel, tourism, hospitality, and related sectors took a direct hit from the chaos that was unleashed globally.
Looking back, the year gone by has been like a filmy story for all in their life, Indians are set to bounce back, emerge stronger from Covid crisis. Returning confidence Prime Minister Narendra Modi is hoping that the vaccination drive will hold growth back in the economy and is expected to perform better in the second half of the year. We believe every step taken by the government to deal with COVID pandemic has resulted in a 'V-shaped' economic recovery and going forward the country is likely to witness double-digit growth in 2021-22.
At this point, business confidence is improving significantly and it seems that we will be on track towards growth and all the businesses have realized that we must learn to live with COVID and its impact as we fuel the economy for growth. Investors should focus on proper asset allocation with a good mix of cyclical and defensive stocks for the long term. We are optimistic on market for the coming year as almost all businesses have adjusted to the new normal and are back on track to the 2020 level. Going ahead, the ground-level reality of the economy will drive the stock market momentum.
4. Do you think higher inflation expectations may spoil the party?
Normally higher inflation is negative trigger for equity markets but there also times when the inflation impact is seen as positive for the equity markets. In history we have seen rising inflation is synonymous with improved growth in GDP. Rising inflation has certain downside risks but it is also essential for growth so equities benefit from higher inflation in the medium to long run. There are some concerns on the retail inflation front too but real concern is rising fuel prices which will soon get reflected in the prices of goods and services as transporters hike their fares. Meanwhile, the economy has been showing signs of recovery, growing 0.4 per cent in the third quarter. However, what has come as a dampener is the threat of rising commodity prices. I believe higher inflation would lead to high returns in markets.
5. Which sectors & stocks are still investments worthy?
Life Insurance - We are optimistic on HDFCLIFE. For investors looking for a high-quality business with consistent earnings growth, HDFC Life offers the best-in-class investment opportunity at current levels. We see an opportunity for the insurance industry amid COVID-19. We believe people will start realising the importance of insurance and the backing it provides in trying times like the current ones. HDFC Life continued to be the market leader in terms of total new business received premium, with a leading market share in the private sector compared to others. Hence, we believe the stock to deliver steady returns over the medium term with a target of Rs 800.
Rationale:
a) Structural play for a very long period of time.
b) Under penetration and new segments developing.
c) Demand for insurance has increased given COVID, 2021 may see much faster growth.
Electric Vehicle- We believes Tata Motors has a lot of potential. It has remained a high beta stock because of a lot of news flow from JLR Europe, China market and Brexit uncertainty but now tables have turned and improvement is being witnessed in both JLR and Tata Motors domestic business. EV has been a game-changing product for Tata motors and the EV has also become the preferred car for several state government bodies in the country. If investors are looking for a multibagger, Tata Motors could be a strong candidate from current levels. Hence, we recommend investors to accumulate with a target of Rs 375 in the next 9-12 months investment period.
Rationale:
a) Upcoming scrappage policy can help create demand in the commercial vehicles (CV) segment
b) Government has done its bit to drive faster EV adoption
c) Plan to achieve zero-debt target by FY24
6. What is your advice to investors in a volatile market? Suggest your trading ideas for coming weeks?
Trader & investors' portfolios have to be better positioned to weather the volatility with proper asset allocations. Going ahead, from now, the ground-level reality of the economy will drive the stock market momentum and investors are advised to keep booking profits as and when the market makes fresh near-term highs. We are now entering into full year result season and stocks specific action would be seen.
Trading Idea for coming weeks:
Buy TATA POWER CMP Rs 105 with Stoploss Rs 97, Target Rs 114/120.
Buy ASHOKA BUILDCON CMP Rs 100 with Stoploss Rs 94, Target Rs 118-120.
Buy IOC CMP Rs 93 with Stoploss Rs 87, Target Rs 105/109.
Buy SBICARD CMP Rs 979 with Stoploss Rs 933, Target Rs 1,025/1,100.
Buy TATAMOTORS CMP Rs 307 with Stoploss Rs 292, Target Rs 319/327.
7. What is your market outlook for FY22?
Vaccination to drive market recovery, but the path may be W-shaped: 2021 theme to watch will be the vaccination drive across the globe but we believe markets have preceding for positive vaccine news and any disappointments in vaccine supply, distribution or adoption - or increased risk from virus variants - could stoke volatility back in markets. Volatility in the equity markets very challenging in current levels. While the long-term structure of the market continues to remain positive, it may face some hurdles in the near term due to concerns over the rise in bond yields, commodity prices and risk of increase in inflation. Given the high volatility continuing in the market for some time, investors would do well by accumulating good quality companies on declines in the market.