The first day of a new financial year has already started on choppy waters; domestic indices S&P BSE Sensex and NSE Nifty 50 are down more than 3% as equity markets continue to tank, nudged by the novel coronavirus pandemic. However, even as investors recently lost most of the gains made during the first half of the previous fiscal, market participants are busy chalking out plans on how to tide over the troubles that the new financial year brings. While most experts are watching out for companies with strong cash flows, some are advising to keep tabs on domestic businesses.
"Valuations are attractive, of course in some sectors like consumption, they are not but I think this is a good time to consider investing in this financial year," said Vinod Nair, Research Head of Geojit Financial Services. Nair advises to be sector and stock specific this time around as the global economy goes into a tailspin. He adds, "Look at domestic oriented businesses that do not have much exposure to the global market and have not much to do with import export revenue or maybe raw material. So businesses that are self sufficient and more related to the domestic economy would do good."
Nair says that bank stocks could be considered as India's financial market improves and expects them to perform better in the coming months. Private banks take the top bunk in his recommendation, followed by a high quality NBFC and one PSU bank. Nair also suggested picking consumption stocks like Hindustan Unilever, Britannia and Colgate Palmolive.
The financial year has started amidst a 21-day lockdown imposed by the government to tackle the coronavirus, which has taken over 30 lives in India. AJit Mishra, VP Religare Broking, said that the trouble caused by the virus is not over yet and could make at least this financial year tough. "Once we see some stability in the markets and economy as well, sectors that will rebound are banking, consumer goods, FMCG, oil and gas along with pharma and telecom," he said. While Mishra alerted investors to the near-term troubles that IT, auto and capital goods could face despite being strong in the long-run.
With prices falling close to 20-30% since the beginning of the calendar year, large caps too are not being avoided by experts owing to their cheap valuations. "In terms of the markets, now is the time to start picking. Keep a certain amount of allocation for cash," says Nikhil Kamat, Co-founder Zerodha, while advising investors to keep 25% of their portfolio in cash. His recommendations consist of large cap companies with enough cash flow that can help them tide over the crisis. Nikhil Kamat is keeping a close watch on IT, pharma and banking.
Analysts expected a pickup in economic activity in 2020, but on the contrary a lockdown has shut businesses and forced people to stay indoors. However, it might not all be grim for India this fiscal. "We are relatively better than other countries say in Europe. When lockdown ends businesses will start again, although it won't be very smooth but in the coming months it will go to normal especially the domestic oriented market," Nair said. He pointed out that equity markets will not back in a jiffy but expects recovery with a positive outlook for the next year.