Rising Covid-19 cases may dampen pace of recovery; here’s what investors should do to protect portfolio

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Markets remained within a tight range throughout this week as the bulls and bears struggled to gain control. The current jump in Covid-19 cases above 4 lakh has added to the commotion in many MSMEs and SMEs but stock markets remained undisturbed. Our Central bank undertook steps to ensure liquidity for both the healthcare sector as well as the smallest stakeholders, who are the most vulnerable of the lot.

Even though not as definitive as a moratorium, the focus of RBI has been towards providing assistance to those requiring the most critical assistance. Under this initiative, they have also permitted banks to park the surplus healthcare-related liquidity at 40bps higher than the reverse repo rate, so lenders are not on the back foot. The new restructuring proposal is applicable to borrowers with aggregate exposure of up to Rs. 25 Crs which gives them time to match the cash flows with repayment obligations. Overall, these initiatives sweetened the mood of the markets.

Benchmark indices showed optimism because of other macro data as well such as GST revenue collections which hit record highs of Rs. 1.41L Crs in April and headline manufacturing PMI which managed to float above the 50-mark, an expansion zone, for 9 consecutive months in a row. These factors indicate a buoyant economic recovery is on its way. An increase in GST revenue will also warrant a reduction in fiscal deficit and a larger room for expansionist measures. But despite these positives, a rise in COVID cases could dampen the pace of recovery and a rapid inoculation drive is the only cure to end this vicious cycle. There is definitely increased confidence from India Inc. this time around and quarterly numbers are also exhibiting signs of resilience in our economy. Investors are suggested to stick with businesses with robust cash, free cash flows and lower leverage for a longer horizon while ignoring the short term noise.

Event for the week

Steel manufacturers reported a record number of deliveries in Q4 with growth coming in from increased prices and elevated demand. China’s decision to remove the rebate on VAT charged on exports eventually makes exports from China less lucrative paving the way for Indian steel manufacturers. Further, the Chinese ministry plans to reduce overall domestic steel production, a move towards their carbon neutrality goal by 2060. All this led to an increase in HRC prices thereby boosting realisations for steelmakers. The decision to ramp up infrastructure globally, higher steel prices and supply constraints combined added to the sharp performance in steel players.

Technical outlook

Nifty50 index closed the week on a positive note, however, the price is still oscillating within a consolidation range. The market breadth also remained quite strong and many stocks are witnessing a fresh up move or continuation in the uptrend. But as long as Nifty trades below the lower end of the rising channel, there are chances of this rally being a bull trap. The short-term support and resistances are now placed at 14400 and 15000, break on either side will dictate the short-term trend. We suggest traders maintain a neutral bias on the market and keep strict stop-loss below immediate support.

Expectations for the week

The coming week is a short one but markets may still find it difficult to hold ground and can sway directionless within the range. A host of economic data from India industrial production numbers to the inflation rate to manufacturing production figures are expected the next week. However, these numbers can be taken with a grain of salt given that markets are forward-looking and the data is of the past. Any aggressive selling on part of FPIs may keep markets under pressure unless the domestic players can maintain the dynamics. Investors are suggested to remain invested and increase allocation to equities on every healthy correction. Nifty50 closed the week at 14,823.15, up by 1.31%.

(The writer is head of Equity Research at Samco Securities. Ciews expressed are personal)