The second COVID-19 wave has established to be more hazardous with India reporting more than 3 lakh situations per day. The industry has been witnessing a substantial correction on the back of increasing situations and re-imposed lockdown-like measures and strict restrictions across states. Axis Securities has revised down its Nifty’s December target by 6 per cent to 16,one hundred from 17,200 previously. In the wake of COVID-19 challenges, the government has proactively began undertaking measures to open up the immunisation system to cover a broader age group from 18 to 45 year old from May 1, 2021. Analysts at Axis Securities say that this has brought some clarity that the COVID-19 will most likely get more than in a finite time frame of next 6 months. “In this scenario, it is critical to assess the damage inflicted by the second wave on various sectors as well as on the corporate earnings as these factors most critically impact the market returns and valuations,” stated Naveen Kulkarni, Chief Investment Officer, Axis Securities.
Basing the sensitivity evaluation of the virus spread and the duration of lockdown, Kulkarni has estimated the FY22 earnings for Nifty 50 to decline by 6-16 per cent in the base to the bearish case situation. This suggests FY22 earnings are most likely to be in a band of 575 to 650 which nevertheless implies development on FY21 levels. “While this is not a doomsday scenario, it does indicate that a few sectors will underperform in the near to medium term while the other few will outperform,” the brokerage firm stated.
Discretionary consumption, autos to be severely impacted
Maharashtra, which contributes 14 per cent of India’s GDP, has announced the most stringent measures by far as the state has the highest quantity of situations. Due to this, sectors connected to travel, tourism, restaurants, modest ticket discretionary and a lot of other people will be severely impacted. The brokerage firm believes that whilst there are not a lot of listed plays in modest ticket discretionary consumption like restaurants, all these will effect the BFSI sector as it is a lender to the SME and MSME segment. Similarly, the auto sector is anticipated to bear the brunt of closed showrooms and reduce capacity utilisation. The profitability of the auto sector is most likely to stay beneath stress in 2021.
IT, Pharma, Consumer staples, Rural set to outperform
With the acceleration in digitisation initiatives undertaken by the Indian providers, the IT sector will be unaffected by the domestic challenges. The sector will also advantage from a stronger Dollar. Amid on-going vaccination drive and roll out of more COVID-19 vaccines, the pharmaceuticals sector is most likely to outperform and advantage from the domestic challenges and see an earnings upgrade in the next 3 months. “Dr Reddy’s and Gland Pharma are likely to benefit from the roll-out of Sputnik which has been recently approved by the government,” the brokerage firm added. Naveen Kulkarni also sees that customer staples are also most likely to see their development trajectory unchanged as meals providers encounter a positive effect. Moreover, rural will continue to do nicely as the last cycle also indicated that the pandemic effect was reduce than its urban counterparts.
Nifty December target noticed at 16,one hundred
Metal costs have continued to surge for the duration of the second COVID-19 wave globally. Similarly, other commodities have also continued to rise. The domestic brokerage firm also stated that even even though the cyclical plays such as cement and capital goods may perhaps see some disruption in demand intermittently, the demand surge post the pandemic is pretty most likely. It sees cyclical space as nicely placed to outperform for the duration of these challenges. Axis Securities noted that the effect on the industry will be substantial but there are sufficient structural plays that present extended-term earnings visibility. These need to be accumulated for the duration of the existing fall as they will provide robust earnings development and could see greater allocation in the brief term. “We remain cautiously optimistic on the equity markets and believe this to be a time to add and not panic,” it added.
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