Ashish Chaturmohta, Head of Technical and Derivatives, Sanctum Wealth Management, says the second coronavirus wave will hit economic momentum and earnings recovery but the government’s assurance that there will be no nation-wide lockdown offers comfort.
In an interview to Moneycontrol’s Kshitij Anand, Chaturmohta says if the Nifty stays above 14,460, it can move towards 15000 but a break below 14,150 can see it slide to the next support zone of 13,700-13,600. Edited excerpts:
The Sensex and the Nifty tested crucial support levels and bounced back but still closed in the red. What led to the price action on D-Street in the week gone by?
It was majorly due to an unexpected surge in COVID-19 cases across the country, with Maharashtra leading with the highest number of reported cases (Maharashtra contributes ~18-22% of India’s GDP).
However, the announcement by the Prime Minister with respect to citizens above the age of 18 being eligible to be vaccinated from May 1, 2021 and easing the supply chain for Remdesivir gave some support to the market.
Small & midcaps were more resilient in the week gone by but some stocks declined in double digits. Why?
Small and midcaps are the largest wealth creators and largest wealth destroyers. For example, Bajaj Finance was a midcap and now it’s a largecap.
It’s usually observed that in days of economic growth, small and midcaps outperform the GDP and earnings growth of largecaps are easily due to low base, high operational leverage, etc but the same is vice versa as well.
The small and midcaps started performing a bit late when compared to largecaps post the March 2020 fall. However, we saw a quick correction recently due to the second wave of COVID-19 to rising questions about economic growth as anticipated.
However, once the cases start coming down and we will see a few things improve on the ground, stocks would again see a good bounce back.
Sectorally, consumer durable, power and realty indices were the top losers. What led to the price action?
Usually during the summer season, power consumption is higher than other seasons and air conditioners and other electronic devices sales are high as well.
Rising COVID-19 cases leading to the closure of several workplaces has impacted business activities which led to this correction in the anticipation of lower seasonal sales.
Nearly 50 percent of IPOs listed in 2021 have gone below the issue price. What should investors do—time to buy them on dips or avoid?
Various IPOs have come at a very high valuation, considering the bull market and a blue-sky scenario valuation. Since the markets were not supportive, post-Jan most IPOs didn’t give that stellar response as they did in 2020.
Further, the P/E multiples to the earnings of a few IPO companies would match up, only if we consider a strong earnings momentum for a company, leaving no room for further upside in the stock price.
Hence, these stocks would be re-rated only upon earnings momentum. Further, all retail investors and HNIs applied to almost all the IPOs to take advantage of the listed gains and when it did not turn out so, the selling on the listing day was very visible. However, good companies having low debt, high ROE/ROCE, etc can be accumulated at dips.
Any important levels which investors should watch out for in the coming week? Which are the important resistance and support levels?
The Nifty is in decline mode since the mid-February high of 15,431 but it is sideways to negative correction. For the last couple of weeks, the index has found support on multiple occasions around 14,250-14,150 and managed to hold above the critical support zone.
Now, crossing and sustaining above 1,4460 levels, the index can rally to towards 15,000. However, breaking below 14150 levels, expect a decline in markets towards the next support zone of 13,700-13,600.
What should be investors’ strategy amid volatility due to rise in COVID cases, falling rupee and economic activity taking a hit?
The finance minister has made one thing clear that India will not witness a lockdown like before and hence economic activity will not come to a standstill.
Secondly, post the first wave, the demand uptick was massive and hence various company’s quarter numbers reflected the same. We can expect the same as before. It is advisable that investors should buy all quality stocks at every correction.
FIIs turned net sellers for the first time in six months. Why this panic?
FIIs have been buyers since the Nifty was around 10,000, whereas on the other hand, DIIs kept on booking profits. Hence some profit-booking at these levels would be there.
The second wave of Covid-19 has been a tsunami, leading to lockdowns and severe restrictions, which will hit economic momentum and earnings recovery.
Also there have been several global issues like a US hedge fund defaulting on margin calls made by the broker leading to a large sell off (Credit Suisse guided that as a number of other banks were also affected and had begun exiting their positions), President Joe Biden plans to almost double the capital gains tax, OPEC restricting supplies to control oil prices, etc.
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