Stock market:
The market has recovered 23% from its lowest point in march 2020. The market opened above the crucial resistance of 9400 which shows an upward trend coming up. The crossing of breakout level heads towards 9880 in the short run. This bull rally might towards 10,500 in the medium run. With the government’s stimulus packages the markets react positively. The Covid-19 pandemic has created lots of opportunities for pharmaceuticals. The pharma stocks like Cipla which used to be at a support price over Rs450 has gained around 46% since 1st April 2020. Other stocks like Dr. Reddys, Lupin, Aurobindo Pharma from this sector have given high returns over a month and they are expected to give good returns for the short term. ITC. Dabur, Marico, Godrej are launching over 3 dozen products in the health and hygiene segment which will be in demand due to people’s concern over hygiene. These FMCG stocks provide a good opportunity for investors. From the metal industry, Hindalco Industries with the target price of Rs225 is considered good consideration.
Bharti Airtel with the fair of Rs.600 can be considered for long term investment. With Vodafone-Idea struggling with AGR dues Bharti Airtel remains to be a potential competitor for Jio. Axis Bank, HDFC, SBI these banks shares must be accumulated over time as and when the market corrects. These banks with strong fundamentals assure good returns in the long term. Major NBFC like Bajaj finance, Bajaj FinServ, HDFC holdings, Muthoot Finance which has corrected over 40% during this pandemic will bounce back once the economy booms.
The reality developers have a window of 45days till the onset of monsoon to resume the work. The lockdown has resulted in a shortage of labor and raw material. Thus, this sector may show very slow progress. Maruti Suzuki India Ltd and Hyundai plan to resume production from the month of May. But unless the dealership opens there would be a pile-up of inventory. Considering the uncertainties, one should avoid short term investments in the auto sector. The revenue loss of the aviation industry spread across airlines, airports, and retail is estimated to be $1-1.5 billion per month of lockdown. It would be wise to refrain from investments since the recovery will take a long time.
Commodity Market :
COVID-19 pandemic has affected the demand and supply of commodities through the impact of mitigation of activity and supply chains. The prices have fallen sharply since January 2020, especially those that are related to the transportation Industry. With the global economies enforcing lockdown there was a sudden decrease in demand for crude oil. The Prices reached a historic low in April with some benchmarks trading at negative levels. With the supply reduced by OPEC and its partners, Oil prices may rise to 42/bbl in the year 2021. However, the risk still lies with the recovery of the economies and increasing demands.
Agricultural prices are expected to remain the same as they are not affected by economic activities as much as industrial commodities. But the hurdles in distribution and logistics may result in price rise.
Gold price is expected to be lower as the easing of lockdown has increased a little risk appetite for the investors. With the lockdowns lifting up in some areas, the resuming of economic activities will shift the investments from the gold.
Currency Market :
We have seen Rupee depreciating during this pandemic due to decreased exports and continuous withdrawal of FII funds from the market. Now since the RBI has taken measures to preserve the financial stability we see rupee again appreciating against the dollar. The exporters can sell the USD-INR July futures at around Rs75.77/ USD in order to hedge against the further appreciation of the currency. The exporter can also book a put option on USD-INR pair at a strick price of Rs.75. The importer or the borrower of foreign currency can hedge by buying the USD-INR futures or call option on USD-INR at strick price Rs75 If the rupee depreciates then the loss can be compensated by the long futures on USD-INR.
Bond Market :
As per the RBI, the savings deposit rate is 3-3.5% with SBI offering 3.25% for deposits less than a year. The term deposit rates range from 5.7-6%. With the rate cuts, the savings return has dropped. In times of crisis the companies are raising funds through bond markets. For an investor investing in bonds will fetch higher returns. AAA rating bond of SBI offers a coupon rate of 9.95 with maturity in 2026. Also investing in bonds like NHAI (coupon rate 8.30) which are tax-free big investors can park their money and also earn interest. The investors can expect higher yields by helping the companies during crisis. Perpetual bonds of Canara Bank, Union Bank of India and Punjab National Bank provide market yield 12.5 percent,12.95 percent, and 14 percent, respectively. Thus, an investor can earn returns that are stable over a period and some tax benefits can be achieved by investing in the bond market.
Summary:
The inflow of FII worth Rs 722.08 crore on 29th April clearly shows the positive market sentiments.
With more investors gaining confidence there can be seen a shift from the safe-haven asset like gold. Gold prices are expected to fall in the future as the economic activities start resuming at work.
Lower Rates pull investors towards the bonds market earning higher returns. Importer exporters and importers should hedge the currency risk by entering into futures and options.
Exporters and importers should hedge the currency risk by entering into futures and options.
Sectors like reality, media remain bearish with pharma, metal, and auto, banks being the gainers.
Note: The rally witnessed this month can be backed by the increase in liquidity in the market by the government stimulus. Investors created demand by buying shares to cover their short positions in futures and options taken at the start of the month. Also, the doubling rate for COVID-19 cases has increased to 10 days, which has boosted confidence investors and hopes for the market to stabilize. But unless the market crosses 10,000 and remains stable we have to be cautious. This rally could be a dead Cat bounce like the one experienced during 2008. In 2008 the market saw a 15% correction but ultimately dropped over 50%.
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