Raghvendra Nath, MD at Ladderup Wealth Management feels the primary reasons for the bearishness of foreign investors is the sudden spike in COVID cases in India. “India has become a hotspot right now and our entire medical system is overwhelmed with the pandemic. Such an environment generally should lead to slower demand in the short term,” he said in an interview with Moneycontrol’s Sunil Shankar Matkar.
Nath advised buying into the sectors which are expected to show high earnings growth in the next 3-4 quarters.
He feels the investors have become more mature, people are looking past the near term volatility and are looking at the broader picture two years down the line. The flush of liquidity available has also helped the markets along with global cues which are highly positive as we see majority of the indices trading at their all-time highs.
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Q: FIIs have net sold over Rs 12,000 crore of shares in April after buying in previous six consecutive months. What are the major reasons for FII selling in the month of April? Do you expect outflow to continue in May as well?
The primary reasons for the bearishness of FPIs is the sudden spike in COVID cases in India. India has become a hotspot right now and our entire medical system is overwhelmed with the pandemic. Such an environment generally should lead to slower demand in the short term. There is a possibility that the selling may continue if the pandemic is not contained.
Q: FIIs have been net sellers whereas DIIs have been net buyers in April. In earlier months, the trend was reversed which resulted in a sharp upside in the market. What does the current trend indicate?
Corrections are always healthy in any bull market. What we saw in the last six months till March was a one-way rally that lifted almost all stocks. Most good quality stocks are now in the fair to overvalued range. Also from a broader market perspective, the current valuations have taken into consideration a lot of positives like vaccination drives, economic rebound, lower interest rates, government expenditure, good monsoon etc. Basically, the markets presently factor most of these future developments in the prices. So, there is a bright chance that markets may move sideways for a few quarters unless we see some strong quarterly numbers from corporate India or if some of the macro factors stage a surprise.
Q: Do you think the rising state-wise restrictions will reduce the spread of fast-rising COVID-19 will hit earnings growth for the June quarter? As a result, have you reduced your earnings growth estimates for FY22?
The lockdowns of any kind should have an adverse impact on economic growth. Even while the governments are not resorting to 100 percent lockdown, a blunder that was made by the central government last year, even partial lockdowns are going to result in reduced economic activity. The auto companies are already reporting reduced monthly sales and the FMCG companies may also face that. Unlike last time, the hoarding tendency in people also seems to be missing. It is too early to say whether the earnings estimates would be revised downwards, but if the pandemic continues with the same ferocity as now for the next 3-4 months, most companies in the consumer, consumer discretionary and banking & financial services sectors should see some impact.
Q: What will be the impact of the second wave of COVID-19 on the Indian economy in Q1FY22?
The current lockdown will have a slight impact on the Q1 GDP as a majority of us could not predict the ferocity of the surge, thus there is a likely negative impact on the overall GDP numbers, however, for the markets, the profitability of the companies have improved drastically which wasn’t factored, this should make up for the impact of the near term lockdowns.
Q: If in case there is more selling pressure in the coming weeks, what are those key sectors to buy and why?
The key sectors to buy would be the base metal stocks, chemical space, cement and infrastructure companies. Ideally, for the near term, buy into the sectors which are expected to show high earnings growth in the next 3-4 quarters. A correction in the above sectors would allow a good investment opportunity for the near term.
Q: The market, so far, has not seen any major impact of record infections and in fact getting buying support on every major fall. What are those key supporting factors for the market?
The investors have become more mature, people are looking past the near term volatility and are looking at the broader picture two years down the line. The flush of liquidity available has also helped the markets along with global cues which are highly positive as we see majority of the Indices trade at their all-time highs. We are witnessing global bull markets, the sentiments of which are currently unfazed by the brief spike in infection levels.
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