Mohit Nigam, Head – PMS at Hem Securities, believes that investors can witness a similar kind of market return or even better return in the December quarter as compared to the September quarter. The benchmark indices rallied 13 percent in the quarter ended September 2021.
Mohit Nigam said that although the impact of this third Covid wave (if it comes) might not be as high as it was in the case with previous waves, investors should remain cautious. Edited excerpts:
Q: The market has given 13 percent return in the quarter ended September 30. Do you expect a similar kind of return in the December quarter and what would be the triggers?
We believe that investors can witness a similar kind of return or even better return in the December Quarter as compared to the September quarter. Some of the triggers for this upcoming rally may be fast pace of vaccination drive, reduction in active Covid cases, expectations of strong corporate earnings, festive demand and improvement in economic activity around the world.
Q: Do you think ‘third Covid wave’ is still a risk for the market when the cases are falling with increasing vaccination pace across the country?
Around 49 percent of people in India has at least one dose and around 18 percent of people in India are fully vaccinated now. Government has already eased many restrictions and with such a record pace of vaccinations, Government gets confidence to further ease the restrictions which will ultimately boost the business sentiment and demand during this festive season. Also the active Covid cases in India are now down by around 90-95 percent from its May peak in most of the states.
Overall we believe that although the impact of this third Covid wave (if it comes) might not be as high as it was the case with previous waves, but investors should remain cautious as the risk of third Covid Wave cannot be completely ruled out. One should clearly understand the business and growth prospects of a company before investing in it.
Q: Auto and Healthcare sectors were only underperformers with around a percent gain in September 2021 quarter and the rest posted decent gains during the quarter. What are the sectors that can hog the limelight in December quarter?
Auto sector could perform well in the December quarter on back of strong demand expectation during the festive season. Our picks in the sector are Tata Motors and Motherson Sumi.
Healthcare sector turned rangebound after a strong rally triggered by the Covid breakout. The sector is ready for another rally after a 5-month consolidation. Hospital segment in the sector is expected to do well going forward as patient footfall is improving. Our pick are Caplin Point Labs, Poly Medicure and Narayana Hrudayalaya.
Other sectors that can be in limelight in the December quarter are Media & Entertainment, Hospitality, travel and tourism as the economy is trying to get back to normal with reopening of offices and schools. We also see strong demand for leisure and entertainment sector as hotel booking improve and theatres reopen with movie release piled up. Our picks in the sector are PVR, Lemon Tree and Easy Trip.
Renewables could benefit from the recently announced production-linked incentive (PLI) scheme and big players entering in this space is another reason the industry could see exponential growth. Our picks would be Shakti Pumps and Tata Power. Festive season shall also bring spark to consumer discretionary sector and major beneficiaries could be Titan Company, Asian Paints and Amber Enterprises.
Q: Quarterly earnings season will begin in the first week of October. What are your broad expectations and will it be better than June quarter?
If we look back into June quarter, most of the period was inhibited from second wave of Covid and local lockdowns led to muted business and operations. On the contrary, September quarter began with a convincing rise in activity. PMI and Core Sector Data also suggests healthy revival of industries and looks even better than pre-Covid levels. Even though commodity prices have fizzled out during second half of the quarter but then strong volume uptick in Q2 FY22 will play pivotal role in supporting topline of metal companies.
IT companies are expected to post healthy numbers, infrastructure companies are receiving multiple orders, entertainment, travel and tourism industries have picked up very well and low housing loan interest rates have given impetus to realty sector. However, extended monsoons could hurt infrastructural activity and YoY comparison could turn out to be weak for some companies. Overall, September quarter shall be a sequentially better quarter for all sectors broadly.
Q: The RBI will hold monetary policy meeting next week. Do you expect any change in policy guidance by RBI?
Monetary Policy Meeting (MPC) noted that the economy is in a much better position than viewed in the August meeting, as indicated by improving high frequency indicators such as e-way bills, steel consumption, import of capital goods and vehicle sales. Manufacturing has rebounded post second wave but we believe recovery remains uneven and needs support through coordinated fiscal-monetary action.
The Reserve Bank of India (RBI) is likely to keep interest rates unchanged and is expected to continue with its current accommodative stance to maintain sufficient liquidity in the system and monetary policy tightening is few quarters away as the economic revival has not reached the pre-Covid level. The low-interest rate regime will continue to support the economic activities.
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