Expect consolidation in equity market amid second wave of COVID-19: Expert

Equity markets plunged 2 per cent on Friday; the BSE Sensex crashed 984 points to close at 48,782.36 level, amid continued worries over the surge in COVID-19 cases. Friday’s decline capped what has been quite a volatile April month for equity markets, which saw the Sensex fall below the 48,000 level, only to recover from there on the back of strong corporate earnings by several companies. How are the markets likely to move ahead and what should investors do amid the market volatility and the near-term economic uncertainty? THE WEEK caught up with Sandeep Bhardwaj, CEO, Retail, IIFL Securities, for answers.

Where do you see markets headed from here given COVID-19 cases continue to surge?

We believe there will be a period of consolidation in the market during the second wave of COVID-19. The second wave of the pandemic seems more dangerous than expected and has already rattled the health infrastructure in the country. Despite the government’s efforts to boost the economy, massive health scare has forced lockdown and restrictions in many key states. This is likely to be negative for economic growth if the restrictions continue for long enough to create economic and supply disruptions.

Last year, as the pandemic hit, equity markets crashed. We haven’t seen that now. While there have been some sharp falls, markets have also recovered subsequently. Why?

The massive global liquidity injection and expectations of a V-shaped recovery prompted a rally after sharp correction when COVID-19 outbreak happened last year. Actual economic recovery happened to some extent in the third quarter of last year and to a greater extent in the fourth quarter of FY21. That is why we are unlikely to see any dramatic movement in the market this year. Also, considering accelerated vaccination of a large population expected by the end of the calendar year, the sentiments are likely to remain stable.

What should retail investors do in the current situation?

We have seen the rise of retail investors throughout last year. The new generation retail investor is aware of the economy, has access to research and market news and understands market terminologies better. However, I would still advise them to remain conservative and long-term in their approach, rather than taking leveraged investing bets. Also, if the markets turn volatile one may keep on investing through the SIP route in mutual funds. In the long-term the India growth story remains intact and will continue to attract global investments. Once vaccinations are complete, India will rise faster than most emerging economies.

From what we have seen so far, how do you see fourth quarter earnings panning out?

The fourth quarter of the last financial year was expected to do reasonably well from various economic indicators, sales numbers indicated during the period. However, considering the earnings being announced, when the nation is in the grip of the second wave, the management commentary has taken centre-stage. We understand, resilient companies across sectors will overcome the second wave as well. However, certain sectors like pharma and steel are gaining a lot of attraction.

What kind of impact is the second COVID wave and restrictions imposed in various states likely to have on the health of corporates and the wider economy?

So far, there has been no all-out lockdown announcement by the government/s across India like last year. Many real estate and manufacturing and logistics businesses continue to function. Also, the vaccination drive is likely to cover large parts of the country during this calendar year. We believe, despite the massive health impact, economic impact is likely limited this time around. Some pockets of production and growth will be impacted in the short time though.

In this background, what sectors are you betting on? Where should investors park their money?

We are recommending parking of money in the pharma sector, insurance sector and financial sector. During high volatility, select banking and financial sector stocks will give the return in the portfolio while the pharma sector and insurance sector also provide support to the investors. Pharma is again likely to be in focus.

We have seen lakhs of new retail investors enter equity markets in 2020. They saw huge market gains. In the current volatility, do you feel investor interest will fall again?

We believe the retail investors’ participation will continue to rise this year also. In the last financial year, we saw over 14.3 million new demat accounts, which was three times that of the previous year. With high-speed internet and mobile apps, equity investing is reaching across India. Most new investors are coming from small towns. It is unlikely that if markets fall the participation will slow down significantly. We would suggest investors invest in good quality themes and stocks based on high-quality research and advice by authorised entities to avoid bad investments.