Capital Markets: Post Bloodbath What The Week Holds For All?

Mumbai: A popular saying for the stock markets goes, “Uncertainty is actually the friend of the buyer of long-term values.” The Indian capital market saw its second biggest fall in its history on the last trading day of February, 2020 where both the benchmark indices lost around 4 per cent on the day while on weekly basis both closed with a loss of nearly 7 per cent. 

The increasing threat of corona virus spreading in other parts of the world from China, forced massive selling across the board and resulted in the capital markets’ bloodbath. On the other hand, the World Health Organisation, terming it as a serious epidemic threat added fuel to the fire.   

Nifty on a weekly basis plunged 7 per cent while it tumbled 4 per cent on Friday’s trades. The markets witnessed a record-breaking fall on Friday, as the advance-is-to-decline ratio was 1:6 while the cash segment turnover of the day was the highest in the past few months. 

Over the past few days, including Friday, Nifty caught up with the rhythm of the US market. Corona virus is affecting the world markets and fuelling worries of a global recession. Due to the uncertainty related to the event, no one is daring to enter into the market heavily. 

Sentiments have completely turned around in a matter of one week.  The market closed out one of the worst weeks in the last decade on fears as the impending emergency may turn out to be a bigger threat than what was forecasted. This was in the backdrop of corona virus infections cropping up in Europe, the Americas.  

Commenting on the scenario, Vinod Nair, Head of Research at Geojit Financial Services, says “The risk to the markets increases as  longer the infection lasts and the more widespread it gets. The numbers, regarding the spread of the diseases and how far it can be contained will drive the markets next week.”

Shrikant Chouhan, Senior Vice-President, Equity Technical Research, Kotak Securities, says, Technically, the Nifty has broken the level of 11350, which was crucial to hold. It may now invite further worries. However, many large-cap companies are on the verge of completing the corrective phase.

On the other hand, Jimeet Modi, Founder and CEO, SAMCO Securities, says, “This fear combined with the fact that markets had already run up, has also triggered a “risk-off” attitude amongst FIIs who have emerged as net sellers this month. This downtrend was not just limited to Indian markets, but was in sync with global markets as a whole, capping one of the worst weekly sessions for stock markets in recent years.” 

Even as this issue drags near-term growth in certain sectors, what lends support is the beaten-down market multiple.

Amar Ambani, Senior President and Head of Research, YES Securities, says, “We must remember that the broader Indian market has been in a consolidation phase since start of year 2018. In summary, near term index support level is difficult to call, but time-wise, the market impact should not last long.”

“Markets are now in an oversold zone and the volatility index is trading at the highest level of the last six months. Despite markets being in an oversold territory, it has the potential to pull back sharply if something comes positive. Be a buyer to select large-cap stocks with a long-term view,” Chouhan adds. 

Sharing his views on the same, Ajit Mishra, VP, Research, Religare Broking said, “The Indian indices would continue to track the overseas markets which are likely to be under stress in the near-term as the impact of the outbreak would adversely impact supply chains across the globe including India. Even any likely relief in terms of Q3GDP bottoming out may also not have the desired positive impact on the markets until the concerns over the virus ease.” 

The Dow Jones Industrial Average was down 357 points, S&P 500 was down 25 points and Nasdaq Composite remained flat at the end of the Friday’s closing. Asian markets are expected to follow the US markets’ Friday closing on Monday, when they open for trading.

What investors should do?

Indian bourses have been trading around higher valuations and hence a correction was needed to align the markets as per the mean reversion theory. Hence, Last week’s fall is a valuation play with corona virus as the scapegoat. The frothy valuations needed the markets to correct and hence investors should slowly and steadily pick reasonably valued quality stocks in a SIP format.

Measures by governments to boost respective economies will also be watched out for, post the Chinese government’s support to bolster the economy. The slowdown in global economic growth might continue for some time, until the virus is contained and which may not happen very fast. However, the recovery has to happen and investors would do well to be focused on the long-term potential of stock markets, Nair says.

Expectations for the week ahead

This week, all eyes would be glued on the most awaited SBI Cards IPO and RITES OFS by the Government of India. No matter the outcome, markets would broadly be driven by the virus and global sentiment.

Winding up, Modi of Samco Securities says, “ While it is impossible as well as futile to predict the pangs of the market, it is wise to rely on the wisdom of Sir John Templeton during this bloodbath: ‘The time of maximum pessimism is the best time to Buy, and the time of maximum optimism is the best time to sell.’ Hence, investors should cherry pick quality stocks in a staggered manner as every dip seems to be a good buying opportunity.”