Global Equities have seen an upward rally in the month of May, as some countries have eased their lockdown restrictions. Indian Equity Markets saw some wild trading sessions in the month of May and ended with -3% Negative( Nifty 50). The rally in the global markets have been due to a slow down in the infection rate and possibilities of vaccine discovery across the globe.
On the back of a strong market rally, US-China Relations are strained due to the COVID -19 Spread. Major Countries in Europe have started posting their weakest
Q120 Earnings, Global Central Banks continue to provide support to their respective economies. In India, Finance Minister Nirmala Sitharaman announced a 20 Lakh Crore Economic Package to counter effects of a slowdown in the economy.
The package was a desperate effort to save the economy and various measures were announced for the MSME and Real Estate Sector. The Markets on the contrary did not take the package too kindly, they punished all major indices with clear short sells initiated at higher levels. Coming to June and some states easing the lockdown beyond their containment zones, economic activity looks like coming back to certain Manufacturing and Services Sector. Our Outlook for June stands on the basis that volatility is here to stay and one needs to choose an Asset Class that suits his profile and risk taking ability. Indians are now looking at a scenario where needs would have to be divided between Necessity and Luxury, and the former looks to be staying with us for a bit.
June is a month where investors should be focusing on putting their money to Automobiles and Ancillaries, Pharmaceuticals and Information Technology. The sectors to avoid completely would be Consumer Durables, Banking and Consumer Goods.
POST LOCKDOWN REASONS for recommending such sectors.
I) Automobiles and Ancillaries.
– Loss of Confidence in using Public Transport,Stocks to Watch out for Maruti and Bajaj Auto.
– Batteries that have been non- functional during the lockdown period, stocks to watch out for Exide and Amara Raja
– Tyre Industry seeing a surge in demand due to New Bookings – Balkrishna Industries and Apollo Tyres.
– Farming Output related to Tractor Sales- Stocks to watch out for M&M, Escorts.
II) Pharmaceuticals.
– Locally Sourced Active Pharma Ingredient (API) and not depending on imports from developing countries- Stocks to Watch out for PFIZER, SUN PHARMA.
– Increase in demand for OTC Drugs- Stocks to watch out for Cipla, LUPIN.
– Increase in Exports to developing countries- Cadilla Healthcare, Glenmark.
III) Information Technology.
– Weaker Rupee and demand rising in Europe/ US would result in higher cross currency revenues – Stocks to watch out for TCS, Infosys.
– Services Sector to recoup the economy faster then that of manufacturing. Developments to also watch out for is DELISTING of some Major IT Companies – Hexaware, Mindtree.
The Sectors we do not recommend are going to be fundamentally stuck in a credit loop.
60% of Consumer Durables Sold in India are financed by Banks/NBFC which are currently facing a difficult time in managing their NPA’s.
50% of India has applied under Banks Moratorium Scheme till Lockdown is eased which would result in some pressure for Banking as Higher Provisioning would be needed in the coming quarters.
At Capital Pundits we believe Week 4 of June would be Hawkish in Nature. Some Major Uptake would push the Markets higher.Keep and eye for the opportunities to come.
