Friday was a historic day in the market, not because Sensex and Nifty hit their 10% lower circuit limits, but because of the near-impossible recovery that not only wiped out the big losses from the previous session, but also generated 4% gains at the close. . The Sensex recovered 4,714 points from the day’s low to settle the trade at 34,103.48.
Should this rebound be seen as a buy signal? Not yet, say the experts. The fear quotient is high. The India VIX volatility index jumped 24% to 51.22 for the day. The fear gauge suggests the likely volatility of the market over the next 30 days. On the other hand, the Sensex is almost in bearish territory, down 8,171 points or 19.32% from its all-time high of 42,273.87 points reached on January 20, 2020.
âSentiment around COVID-19 is boosting global stocks. Several major economies have yet to contain the virus. This may require more drastic lockdowns and economic controls. It could lead to the market under-surpassing. At least in India, this ain’t a “Kid The Toy Store Moment. Unlike 2008, quality, steadily growing stocks are still far from cheap, âBofA Securities says in a research note.
However, now is not the time to sell either. If the proverbial End Day makes you nervous and you are considering taking your money out of the markets, it might turn out to be the worst decision at this point, analysts said.
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âCurrently, fear of a deep economic recession is wreaking havoc in the markets. The relentless fall in stock prices can be attributed to dynamic algorithm-based selling, forced technical selling due to deleveraging from long derivatives and margin funding positions Retail investors shouldn’t panic and stick to their asset allocation strategy, âsaid Devarsh Vakil, Head – Advisory (PCG), HDFC Securities.
In fact, this is the time when you need to keep your shopping list ready. âSituations like these are great opportunities in the stock market, but we must avoid bottom fishing when we are still in the midst of the problem. We must wait for clarification on the number of coronaviruses before we venture to buy – even at a higher level than where we are today. Nonetheless, one needs to be prepared with a shopping list as it’s hard to call a low until we see the coronavirus data hit a low. summit across the world similar to what we are seeing in China, âsays independent market analyst Ambareesh Baliga.
Which pockets will recover first?
Bank stocks, especially private banks, will boost the rally when this happens. BofA Securities suggests two approaches when looking for buying opportunities – stocks that fell the most (global exporters / cyclicals) as well as large-cap stocks that contributed the most to the downside (RIL, HDFC , ICICI, Infosys). Second, the brokerage advises to stick with quality, low-leverage stocks, because without economic growth, subsequent performance will remain with a narrow set of these stocks.
âIn both cases, private banks are doing well. We recommend âbuyingâ on HDFC Bank, ICICI Bank and IndusInd Bank, âsays BofA Securities.
Private sector banks have steadily gained market share from PSU banks through their high quality technologies and professional management. Meanwhile, PSU banks have suffered due to rising NPAs and weak governance practices. âPrivate sector banks with strong, profitable loan growth and stable asset quality enable attractive purchases,â says Vakil of HDFC Securities.
He expects the financial sector as a whole to continue to outperform the markets, thanks to abundant liquidity and great opportunities to develop their businesses. âLarge cap stocks, especially stocks in the derivatives segment, will see a rapid recovery with short hedging,â he adds.
Sectors such as cement, pharmaceuticals, consumer goods, specialty chemicals are a few other notable pockets that you should look at. âWe will have to look at the areas where there would be demand. I expect the government to focus on infrastructure to get the economy going. Global buyers are said to be looking to lower their supply chain risk from China by looking to other regions. India should be one of the main beneficiaries of this change, âsays Baliga.