Investors turning anxious over second wave of Covid-19; where to invest now?

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Domestic markets remained choppy throughout the week but there was a pinch of optimism as they tried to imitate global indices, especially the US which hit fresh highs majority of the week. Equity investors are generally betting on a common theme around excess savings, deficit spending and the vaccination drive to steer the path amidst pandemic surprises. And just as central banks across the world, our RBI too maintained their accommodative stance and kept rates unchanged in order to calm apprehensions over rising Covid-19 cases. The MPC has forecasted GDP rates at 10.5% for FY21-22 which is inline with expectations. The approach by the RBI is balanced, infact it is a bit more dovish than expected. Even though the monetary policy missed aggressiveness, it appears that there was not much the RBI could do considering the current economic environment.

The speech also elaborated on a new G-Sec Acquisition Programme (G-SAP 1.0) of Rs 1 lakh crore in this quarter which appealed to equity investors as it would effectively help to flatten the yield curve. All in all, the policies are in line with the governor’s vow to assure liquidity in the system until inflation is under check. But the announcement prompted the bond yields to dip slightly and the rupee saw its first biggest single-day fall in 20 months because a continued bond purchase increases the possibility of the rupee flooding our gates, leading to inflationary risk thereafter. This weakened the sentiment towards the USD/INR currency pair. But investors must not read too much into the current policy and continue investing in stocks in a staggered manner on every correction.

Event of the Week

The fiscal ended with positive auto sales numbers and while their yearly growth was because of strong demand traction and a low base from Mar’20, the MoM uptick can be attributable to the continued surge in rural demand. Exports gave a positive push in the 4-wheeler and 2-wheeler segments whereas demand for CV steadily recovered due to increased thrust on infra, construction & mining. The auto sector appears to be at the cusp of facing challenges due to partial lockdowns announced in some states which have showrooms and dealerships closed for sales. However, the performance so far has been positive and investors are suggested to remain vigilant on how autos perform in the coming months to determine a broad trend in this space.

Technical Outlook

Nifty50 index closed flat for the week after consolidating in a broader range. After testing the lower end of the channel, bulls and bears are in a strong fight for control in the short term. The market breadth has also remained mix in the week gone by. Many sectoral indices are now forming a minor bottom kind of pattern after being oversold in the short term and global indices are showing a positive performance. Nifty is likely to break on the upside as it is already trading at the upper end of the range. Traders are advised to maintain a bullish bias while keeping a tight stoploss below the immediate support of 14550.

Expectation for the Week

Starting with the IT sector, markets will be busy decoding the earnings performance of India Inc. from the coming week. The majority of the sectors are expected to put up a decent show but investors are advised to remain cautious given that stock prices have run up hastily and most of the positives have already been discounted for. It would be advisable to explicitly judge management commentary to understand growth outlook for specific stocks. Investors are suggested to remain invested and look for opportunities to be overweight in quality players especially from the IT, FMCG and pharma sectors. Nifty50 closed the week at 14834.85, down by 0.22%.

(The writer is Head – Equity Research, Samco Securities; views expressed are personal)