Second COVID wave far worse, Nifty can fall 4-8% but use dips to buy, say experts

Market Outlook

Indian markets witnessed a knee-jerk reaction that pushed benchmark indices lower by over 3 percent each on April 12 as sentiment turned risk-averse with the unabated rise in coronavirus cases fanning fears of extensive curbs or even lockdowns in the hardest hit states.

The benchmark indices closed below crucial support levels and experts haven’t ruled out a further decline of 4-8 percent but said the fall should be used as a buying opportunity as the long-term trend is intact. They said the country was better prepared this time and the availability of vaccines offered comfort.

“We have at least two vaccines available with us and the third vaccine (Russian Sputnik V) has been given approval for emergency use in India. People are more aware and India has completed vaccination of 100 million people,” Gaurav Garg, Head of Research at CapitalVia Global Research Limited told Moneycontrol.

He said the government would avoid large-scale lockdowns so that economic activities were not disrupted. “Moreover, now markets are mature enough to digest these circumstances. There might be a correction of 4-8 percent, which is normal from current levels but the long-term trend is going to be intact,” Garg said.

If imposed, additional restrictions will not only hurt the economy but will also have an impact on companies’ earnings growth for the June quarter, experts said.

The Nifty is down more than 7 percent from the highs of 15,430 touched in February 2021 and any dip should be used as a buying opportunity. On the downside, crucial support for the index is placed at 12,829, the 200-DMA, and 12,300.

“As the main trend is still strong, stocks can be bought on pullbacks. The medium-term is under threat below 13,500 and the longer-term below 12,300. Till then, one can buy stocks on dips,” Palka Chopra, Senior Vice President, Master Capital Services, said.

A furious second wave 

“History does not repeat itself but it often rhymes”, so the saying goes. We are seeing a replay of 2020 but infections are surging at a much faster clip.

As cases began inching up in March 2020, the market tanked more than 20 percent. A year later, the rise in infections is much faster and relentless but experts say vaccines will take care of the uncertainty, a bugbear for markets.

“Monday’s fall in market has certainly reminded us about the bloodbath in March 2020. However, unlike March 2020, today we have a vaccine that eliminates the uncertainty about massive fallout,” Binod Modi, Head – Strategy at Reliance Securities told Moneycontrol.

Covid Wave

Data from Motilal Oswal shows that in the first wave, it took 102 days for the infections to rise from 10,000 to 100,000. In the second wave, it has taken just 47 days for cases to rise from 10,000 to 1,00,000.

“The second wave has been fast and furious as it has beaten the first peak in terms of the number of new cases. The market reacted to the second wave of COVID-19 adversely as the market is anticipating lockdown restrictions coming in different parts of the country,” Garg said.

“I believe this sell-off will be short-lived as the government will try very hard to not disrupt any economic activity and at the same time fight with COVID in a strict manner,” he said.

A total of 1,61,736 new coronavirus infections were reported in the country over the last 24 hours, pushing India’s case tally to 1,36,89,453, the latest data from the health ministry showed on April 13.  The spiralling infections have pushed the recovery rate further down to 89.51 percent.

India that has overtaken Brazil as the second-worst hit country after the United States recorded more than 873,000 cases in the last seven days— an increase of 70 percent compared to the previous week, according to data compiled by AFP.

“For me, these numbers of Covid-19 cases are not astonishing, as we have observed in western World. It is a proven fact that the second wave of COVID-19 is much more infectious than its first wave and now the same is true for India as well,” Amit Jain, Chief Strategist-Global Asset Class, Ashika Group told Moneycontrol.

What should investors do?

The S&P BSE Sensex and Nifty50 on April 12 saw the second-worst day of 2021. Experts say long-term investors should not miss the opportunity to buy stocks on dips as vaccines put India in a comfortable position. Cumulatively, 10,45,28,565 doses had been administered in the country, according to the latest update from the health ministry.

“Given 2020 experience and government’s continued focus towards ramping up vaccination process, we believe outbreak can be controlled faster than first wave period,” Modi said.

Hence, the economic fallout would be limited. A sharp fall in markets should be considered as an opportunity for bargain trading by focusing more on quality stocks, he said.

Jain of Ashika Group flagged the second COVID-19 wave and growing tensions between Russia and Ukraine as concerns for the global market. He favoured a staggered approach to investing in emerging sectors and stocks.

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