Coronavirus lockdown: What should be stock market investors' strategy?

The government's Rs 20 lakh crore coronavirus relief package is not expected to have an immediate impact on the economy, analysts say, adding that the stock market is likely to react accordingly only when the lockdown opens. In fact, more correction may be seen in the market over the period owing to job losses, consumption-dip and longer economic recovery.  "The 20 lakh crore stimulus package announced by the Government will certainly not have an immediate impact on the economy but will have significant long-term repercussions since the stimulus firepower focused towards the supply side issues but indicated a slight disregard to cater the demand side of economy," Umesh Mehta, Head of Research, Samco Securities, told BusinessToday.In.

The benchmark equity indices - Sensex and Nifty - have corrected almost 6 per cent each since the package was announced by Prime Minister Narendra Modi on May 12. "We believe the markets are pricing in the fiscal impact of the recently announced stimulus package. However, if the infection continues to increase then the government would have to impose stricter lockdown. Therefore, the faster we can contain the spread of the virus and ease the lockdown, the lesser would be the chances of any further fiscal slippage," Ajit Mishra, VP Research, Religare  Broking, told BusinessToday.In.

Heavy selling from foreign portfolio investors (FPIs) and marginal support from domestic institutional investors (DIIs) in the four trading sessions between May 12 to May 15 triggered the decline of the equities. Nearly 40 per cent of the selling by the FPI, in the cash and derivative segments, during the ongoing month has been in just four days of the week Modi announced the stimulus.

Way ahead for investors

Even as the impact of the stimulus may be reflected in the longer-term, analysts advise retail investors to move ahead with a cautious strategy. Defensive sectors such as pharma and FMCG could currently offer good opportunities since these have been defying the coronavirus pandemic very well. Amid ongoing volatility in the stock markets, the investors may tread cautiously and save cash, Umesh Mehta said. "Retail investors are advised to wait and watch and preserve cash by not aggressively investing at the current levels. Investors can selectively book profits too in order to raise liquidity," Mehta added.

Investors can also focus on safe haven such as gold, said analysts. Even ETF and sovereign gold bonds could be an option, Vijay Kuppa, Co-Founder, Orowealth, told BusinessToday.In. "Investors should consider investment into Gold as an Asset via Mutual funds, ETF or Sovereign Gold Bonds which will assist in hedging the portfolio and provide capital protection. An investor can also consider Government Tax Free bonds in case it is announced which provide an option as a Debt product," Kuppa also said.

On the other hand, Ajit Mishra's top bets included Reliance industries and Bharti Airtel apart from FMCG and pharma stocks in the current scenario. "Reliance Industries has witnessed healthy buying interest as the company signed several deals for its Jio platforms. This along with the recently announced rights issue would help the company to reduce its debt. Further, Bharti Airtel is also expected to be one of the least impacted companies due to a possible increase in data usage," Ajit Mishra noted.

Expected Sensex, Nifty levels

The coronavirus situation, over the days, will decide levels for the domestic equity indices in the near term, the analysts said. "Over the long term we expect the Sensex and Nifty to rise as the economy returns back to normal and consumption becomes stable. In the short term, individuals should expect short term volatility as the impact due to lockdown will start becoming visible in the forthcoming corporate results," Kuppa said.

However, Mehta is not very hopeful about the prospects of markets moving forward. "After the recent break of 9050 on Nifty, the next immediate crucial levels for Nifty and Sensex are 8100 and 27600 respectively on the downside and once they get violated, we might get to test the recently established lows of 7500/7200 on Nifty and 25000 in the Sensex," he said.

Commenting on the likely stock market levels in the near-term, Ajit Mishra said, "Our short term view is negative and we might see Nifty testing 8400 zone ahead while upside seems capped to 9400 zone. Similarly, Sensex may test levels close to 28,000."