Mohit Nigam, Head, PMS & advisory, Hem Securities, says the volatility in the market is being fuelled by the fear of missing out (FOMO) and panic reaction as nothing has significantly changed in the last one of two weeks.
A chartered accountant by training, Nigam has about six years of experience in capital markets. Before joining Hem Securities, he worked with Axis Bank and Goldman Sachs Investment Banking Division.
In an interview to Moneycontrol’s Kshitij Anand, Nigam says the May series will decide the medium to the long-term direction of the market, as COVID-19 infections are expected to peak with vaccination drive gathering pace. Edited excerpts:
Your takeaways from the April series expiry and outlook for May?
The April series saw some recovery towards the end and closed above the key support of 14,850 after being weak for the most part of the series. Metals continued to be the torchbearers due to substantial demand and an increase in prices.
There was a positive movement in chemicals and pharma space during a volatile month showing its resilience.
May series will be an interesting phase to see as the medium to the longer-term direction of markets can be decided in this month, as there are expectations that COVID infection to peak out amid an increase in vaccinations.
There is optimism around the result season and the majority of the biggies are expected to deliver strong results, which might protect a significant downside.
Supports will be placed at 14,200 and 13,500 and on the upside, if it breaches and closes 15,000 levels, we might see a fresh all-time high very soon.
Mid and smallcaps are likely to outperform the larger players across sectors. We are bullish on chemicals, IT, private banks and domestic manufactures in the capital goods/infra sector.
The COVID-19 situation remains as is. India is inching towards 4 lakh daily cases but even amid this gloom, equity markets have managed to reclaim crucial resistance levels. The Nifty is back above 148,00 and the Sensex touched 50,000. How do you define this euphoria—FOMO or a bubble?
It is more of a FOMO (fear of missing out) and panic reactions, be it an erratic buying or selling because the fact is nothing has significantly changed in the last one or two weeks.
Rather the situation currently has become worse due to COVID. There are positive developments as well like more or less stable, and positive results from IT, banking & FMCG spaces along with a dovish Fed.
There are some players who are waiting for a solid correction like last year, which is not going to happen and there are others who are seeing a quick rebound in the next few weeks.
The reality is, under the current circumstances, it is very difficult to predict the direction of the markets and people are trying to jump on and off the boat in a hurry.
Do you see a selloff after the recent run-up?
We saw an 8-9 percent correction in the markets from the all-time high. We never anticipated a 30-40 percent correction like last year because COVID-19 is not a shock anymore for the markets like the last year.
However, due to the delicate and extraordinary nature of the COVID situation in India, we might see both ways of volatility for the next few weeks.
The result season is on so we will see stock-specific actions as well. A substantial dip should be taken as an opportunity to add good quality stocks across different sectors and hold them without panic for a longer term.
What are the factors fuelling the rally in the markets?
There are a plethora of factors but the most important ones are the surge in the COVID situation and the result season, which are indicating a solid expansion this quarter (we are also getting a benefit of a lower base in the last quarter).
Besides, the economic recovery in the US and China, US treasury yield movements and FII flows in India are to be watched.
Sectorally, the action can be partly attributed to the banking sector, especially after April 22 when the Nifty hit a swing low of 14,151. The rally was led by Nifty PSU banks, banks, as well as small and midcaps.
There was a larger correction in the financials than the index since last month. There was a fear in the markets about financials bearing the brunt greater than the rest of the sectors.
However, stable or better than expected results by ICICI, Axis and HDFC have offset negative sentiments to an extent and consequently, we saw a massive and quick pullback in this segment.
Since financials have around 40 percent index weight, it successfully brought the markets up. We saw a healthy rally in the metals and chemical segments, too, because of clear signs of a good quarter.
Small and midcaps will continue to gain a lot of traction in the near term, especially from the chemical, IT & pharma segments.
So far in March, the Nifty Metal rallied over 16 percent. What is leading the price action?
In the past month, the Nifty Metal index was the top-performing index, rallying 16 percent against a 1.18 percent rally in the Nifty50.
JSW Steel, SAIL and Tata Steel lead the pack by rising 19-42 percent displaying the dominance of large caps in the sector. The movement was majorly due to the pickup in global demand with China’s steel exports rising by 16 percent YoY to 7.5 mmt in March 2021 as against 6.48 mmt in March 20.
There was a substantial rise in export prices in March over January and February prices (from $ 690/t to $ 840/t), which were a shot in the arm for the top line of the companies.
Consequently, Indian HRC and cold rolled coils (CRC) prices have been hiked for the second time in April 2021 deliveries and currently stand at Rs 63-64k/t for HRC and Rs 74-75k/t for CRC.
Meanwhile, the World Steel Association (WSA) has projected India’s steel demand for CY22 at 112.3 mnt (or up 5.9 percent YoY), up from 106.1 mnt in CY21.
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