Are the Green Shoots for Real?
September 2020 partly lived up to its expectation of being notoriously bad for stocks and being high on the volatility front. Why do we say partly? That is because the Indian markets suffered their first monthly decline after registering gains for three consecutive months. This was expected as stocks usually witness a decline in this particular month. On the other hand, volatility, which was also expected, was a miss as India VIX, which helps to predict the overall market volatility, continued its declining trajectory on a month-on-month basis and slipped below the 20 mark. Also, Nifty’s range of the month was about 828 points which was less than its 10-month average and also less than its prior month’s range.
That said, market participants were on the edge of their seat as the month started with anxious news of simmering geopolitical tension and the fear of a second wave of the corona virus looming in the European region, which further fanned the ongoing flame. However, the month ended on a prosperous note in terms of news flow as the Government of India released new guidelines for Unlock 5.0. Almost a month and a half ahead of the biggest festival of India i.e. Diwali, at last there is good news for the entertainment and hospitality sector.
With the government easing the restriction imposed on activities outside the containment zones, cinema halls, theatres and multiplexes will be allowed to reopen from October 15 with 50 per cent capacity. Also, hotels and restaurants will be allowed to function in Maharashtra. Hence, we can see a sentimental shift in the stocks belonging to both the sectors. In fact, stocks like PVR and Inox Leisure were trading near their one-month high. The big question though is whether this is a good time to buy these stocks. We believe that what we are seeing is just a sentimental booster in these stocks based on the announcement rather than anything in material terms.
The operational cost is likely to inch up higher and moreover, there is not much content to be released soon before the festive season. Also, we have to look at the behaviour of the consumer i.e. whether moviegoers would be willing to visit the cinema halls wearing masks. To sum up the scenario, we would advise investors to keep these stocks on the watch list and track further developments rather than jumping on to the bandwagon based on this announcement. Footfalls would be a key parameter to gauge in the near term.
Meanwhile, the primary market continues to buzz with new debutants on the stock exchange i.e. CAMS and Chemcon Speciality Chemicals making a solid start. Chemcon Speciality Chemicals, which received an overwhelming response from investors, listed at 115 per cent premium to the issue price and CAMS listed at 23 per cent premium over the issue price. Despite the slowdown in the economy and uncertainty of the future path of economy, the key triggers for IPOs to garner an awestruck response from investors are the liquidity and lower interest rates on fixed income instruments.
Another sector in the market which is slowly and steadily picking up is the automotive sector. The index has almost reached its February levels, marking a V-shaped recovery. The automobile sales figures for September have started to trickle in with India’s largest car-maker, Maruti Suzuki, reporting a surge of 30.8 per cent YoY in its sales for September and Escorts reporting its highest ever September sales and registering a growth of 9.2 per cent YoY. The management has stated that rural demand continues to remain positive led by the lower base of last year, pent-up demand and fundamentally positive macroeconomic factors. Further, they remain optimistic for the coming festive season. Bajaj Auto reported a growth of 10 per cent YoY with highest ever exports in the two-wheeler segment. Selectively, automotive and related stocks could be a good bet in the short to medium term.
The Nifty Auto index is likely to head towards the 8,400 mark with the festive season coming up as well as the timely and widespread monsoon, record Rabi crop production, early Kharif sowing and good availability of retail finance, all of which is likely to drive rural demand. Don’t miss on this opportunity as it reminds me of a quote of author Manoj Arora who said, “All of us, at some point in life, get brilliant ideas – only a few of us have the courage to take the next step.” In the coming week, volatility could be seen in the market on account of the Supreme Court hearing in the interest waiver case on October 5 besides the trend that the ongoing pandemic will take. The political scenario in the US could also dictate the behaviour of the market.
