Traders should take profit from this rally while long-term investors can accumulate in dip…

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Quarterly results announced till date, which was anyways expected to be weak, have been marginally below expectations. Rather than the results itself, markets were more looking forward to the management commentary and on the lockdown impact on business from April to September.

In the IT space, Infosys, Wipro and TCS were some of the larger names to announce their results. All companies saw a de-growth in YOY net profits, with disruption caused by the pandemic in overseas businesses as the major factor. The companies are hesitant to provide guidance for the coming quarter. 

In banking, HDFC Bank, Axis and IndusInd Bank announced their results for the quarter. Banks seem to be impacted by weak credit growth and MCLR cuts leading to reduction in interest margins. HDFC Bank saw a 17% increase in net profits, below estimates, as the bank doubled its provisions in view of the Covid 19 uncertainties. Axis generated a loss and IndusInd Bank’s net profits declined 77% sequentially as a combination of increased provisions and NPAs impacted the numbers. Bharti Infratel missed estimates with net profits declining 18% sequentially, with increase in other expenses on account of non-payments by Telecom operators.

In spite of redemption pressure and the unprecedented development of closing MF schemes, the market has been positive this week. RBI has taken a quick & precise decision to provide window of Rs50,000 cr funding, which will be very helpful specially to small investors to liquidity at fair price and also provide safety to the market, as visible today. Similar facility was opened in 2008 and 2013 that increased confidence and reduced volatility of debt market.

The market is floating with positivity in expectation of a fiscal stimulus bonanza from the Indian government, positive global trend and improvement in the outlook of spread & vaccination in the future. Global market is positive due to some stability in the plunging crude prices and huge fiscal and monetary stimulus in US, Europe and Asia. The equity market has factored that the month of April to June will be a washout for the economy and company earnings. Thus, improvement will be seen only in a stage wise manner. So, the market foresee that the worst is factored in the market and the downside is protected. Based on this thesis, the market has been rallying strongly, the sustenance or last phase of the rally will depend on how huge & effective will be the package and further financial crisis due to great lockdown.

We have already started to see economic consequences like collapse in oil prices, commodities, huge unemployment, closure of schemes, corporates and businesses, more financial implication of which the world will have to bear going forward. Today the market is avoiding this negative news due to support from fiscal anf monetary liquidity leading a bounce rally. The sustainability of which is getting limited given the fact that the ground reality is rigid and will add harm to businesses in the next one to two quarters. We suggest traders to capitalize from the rally and book profits in the near-term. While for long-term investors accumulation will be a good strategy during dip in the next 0ne to two quarters.

2 COMMENTS

  1. Sir my investment is down by 50%.
    Presently which shares should i buy or sell. My client id is MUK348. Can i invest in Polycab @ 677; Manapuram @ 123 ; SBI card @ 570. Kindly advice
    Regards

    • The impact on portfolio is more or less than the market depending on the mix of the portfolio. Today defensive stocks, FMCG, Telecom, Pharma, Chemicals, Agri and stocks with stable balance sheet are outperforming the market. May I suggest few stocks which I believe can generate good wealth in the long-term: Asian Paint, HDFC Bank, Jubilant Foodwork, Colgate, HDFC Life, Mahanagar Gas, Indraprastha gas, Pidilite, Maruti and PI Industries.

      About Stock Query:

      Polycab: is not under our coverage, hence I will not be able to comment on recommendation. But it historic financial perform is solid with stable business parameters and growth. Having said that, their business in related to construction and infrastructure which is heavily impacted today due to slowdown in economy. If the economy is likely to improve in the next 2 quarters then we can assume that a good amount of risk is factored in the price. While the long-term outlook looks encouraging.

      Manapuram: We have a buy rating with a target of Rs133, please refer to our website with more details about the company & research report.

      SBI Card: Is not under our coverage. The fundamentals of the company are good with positive outlook for long-term. While valuation is on the higher side which may impact the performance of the stock in the short term.

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