While the concerns over rising bond yields and strengthening of the US dollar have somewhat abated over the past couple of weeks, worries over a precipitous rise in coronavirus cases in India and a macro slowdown have resurfaced
As rise in covid cases across the country continues to worry investors, analysts are cautious that there could be further sell-off in markets. According to Credit Suisse Wealth Management India, equity markets could see some further profit booking in coming weeks.
“We believe the equity market could see some further profit booking in coming weeks, but we expect this correction to be very sharp and to not last long. Hence, we recommend investors use this correction as a buying opportunity from a 6-9 month perspective," Jitendra Gohil, head, India Equity Research, and Premal Kamdar, equity research analyst, Credit Suisse Wealth Management India, said in a report on 20 April.
While the concerns over rising bond yields and strengthening of the US dollar have somewhat abated over the past couple of weeks, worries over a precipitous rise in coronavirus cases in India and a macro slowdown have resurfaced. The Indian equity markets underperformed Asian peers. On Tuesday, the BSE Sensex ended at 47,705.80, down 243.62 points or 0.51%. The Nifty was at 14,296.40, down 63.05 points or 0.44%.
Indian markets are already down nearly 8% from the record levels hit in February this year post the Union Budget. While foreign institutional investors (FIIs) have turned net sellers this month, domestic institutional investors (DIIs) have continued to buy for second consecutive month in a row.
“While the second wave of the covid-19 pandemic in India and subsequent restrictions may lead to some growth worries, we believe corporates are better prepared this time. We do not expect a nationwide strict lockdown to curb the pandemic; instead policy makers could resort to partial lockdowns, faster vaccine approvals and strengthening of the healthcare infrastructure," said Gohil and Kamdar.
They believe, from an asset allocation perspective, equities offer a better hedge against rising inflation, and hence constructive outlook on equities continue. While Credit Suisse’s global investment committee (IC) acknowledges near-term challenges in equities, it maintains a positive outlook on equities from a medium-term perspective, given the overall favouable growth prospects and ultra-loose monetary policies.
In the fixed income space, the Reserve Bank of India’s recent quantitative easing (QE) is likely to keep government bond yields range-bound despite higher-than-expected supply and elevated inflation, they said.
All eyes will be on the banking and financial sector in the March quarter earnings season. Banks and NBFCs will have to set aside additional provisioning in light of the second wave.
“Auto companies could continue to experience margin pressure and might have to announce price hikes in coming weeks. Export-dependent sectors such as pharma, chemicals, commodities and sectors with better pricing power, such as FMCG and cement, could outperform in the near term," the report said.
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