After facing the brunt of the pandemic and resultant lockdown final year, the recovery in corporate income continues powerful. Now, as the second wave of covid-19 wreaks havoc, Dalal Street is anticipated to witness marketplace volatility and correction, paving the way for investors to add cyclical stocks on dips, stated domestic brokerage firm Motilal Oswal in a current note. “We believe this correction is a buying opportunity and it doesn’t change the medium-term thesis of recovery in corporate earnings led by underlying macro pick-up with focus on investment cycle,” the report stated.
Volatility up valuations to ease?
Benchmark indices have now corrected a modest 6% from their current highs but lots of stocks have undergone a heavy 15-20% decline. India VIX, the volatility gauge, has remained variety-bound. Several states have announced some restrictions which are probably to hit financial activity going ahead, producing some anxiousness amongst investors.
Correction in markets, accompanied by the earnings recovery will also bring the stretched valuations reduce. “Current phase of ‘stock price consolidation’ and ‘continued earnings traction’ will result in market valuations retreating from stretched levels,” stated ICICI Securities. They added that throughout the existing phase, modest-cap indices have gained 3% and mid-caps have gained 1%, substantially outperforming the benchmark NSE NIFTY50.
Top stocks to watch
Analysts at ICICI Securities continue to be overweight on cyclical stocks like banks, industrials, selectively auto, along with defensives with higher dividend yield stock such as utilities. Meanwhile, these at Motilal Oswal are overweight on BFSI, IT, Metals, Cement and Neutral positions in Consumer, Auto, and Pharma although staying UW in Energy, Utilities and Infrastructure.
ICICI Bank, SBI, Ultratech, M&M, Hindalco, Titan, and SBI Cards are amongst the big-cap bets of Motilal Oswal. Chola, SAIL, Emami, Gland Pharma, LTTS, IEX, Varun Beverages, Gujarat Gas, Orient Electric, and Federal Bank are the best midcap bets.
Economic recovery intact
The second wave of covid-19 will only delay the financial recovery and not protect against it, according to analysts at ICICI Securities. In the United States, the second wave throughout the final quarter of the calendar year 2020, did not have a considerable effect on the financial recovery. “We believe, India, with limited lockdowns in a few states, will show similar trends with the organised corporate sector getting impacted even less than the unorganised sectors,” ICICI Securities stated.
Working in India’s favour is the rising pace of the vaccination drive. “Vaccination pace has increased from 10 lakh per day at the beginning of March to 38 lakh per day in April. With the approval of new vaccines, there could be a further increase in the supply of doses which can boost the vaccination rate further, in our view,” Motilal Oswal stated. So far 1.39 crore individuals have been totally vaccinated in India and 11.1 crore have received at least one dose.
(The stock suggestions in this story are by the respective investigation and brokerage firms. TheSpuzz Online does not bear any duty for their investment tips. Please seek the advice of your investment advisor prior to investing.)