Is the market expected to crash amid rising covid-19 cases and lockdown woes?
It been a year since first lockdown was implemented and market at then fell 35% from all time high. The Pharma and FMCG sector held strong and the other sector fell almost 50%. Since it was one of a kind situation, there was lot of ambiguity of how things will shape up from here, there was absolutely no clarity how it will affect the GDP, Corporate earnings etc.
The survival instincts of corporates are very strong hence many corporates quickly managed to set up the infrastructure to be able to work remotely and effective cost management techniques helped them to deal with lower revenues to some extent. Currently Sensex has corrected almost 6% from its all time high which is partly due to global cues too. Though the probability of complete lockdown is low, the lockdown in selected cities or some strict rules and guidelines may be issued by state. There can be some intercity travel restrictions.
Market will not take this positively and hence we’re already witnessing a correction since past one week, but a market crash is also ruled out as we are geared up better this time. The corporates are ready with infrastructure to support work from home, the panic and fear which a common person is having now is way less that what they had last year, so the sentiments are better now, the health infrastructure is better, we now have medicines to cure and vaccine to prevent and hence there is a better visibility of overall scenario. This fiscal year GDP is expected to contract by 7.5% hence the 35% crash was a overreaction from the market last year. This time, the impact is going to be much lower and market is expected to react much better this time. Hence, we believe that any levels below 48k on sensex and 14k on Nifty is an accumulation zone. If there is a double whammy and US bond yield touches 2% yield then market may correct further and 46k on sensex and 13k on Nifty appears to be the base level for a full correction.
This analysis is based on price correction, market is currently trading at a very premium valuations and corporate earnings have to catch up a lot to justify this valuations, since the market has done its job for now and the ball is in the corporate’s court to justify the valuation by showing significant increase in earnings in the coming quarters. For the next few months or quarter we do not see any sustainable significant upside while some spurt due to liquidity or technical bounceback cannot be ruled out.