ETMarkets Survey: Nifty50 won’t revisit March lows, but a deep correction likely

NEW DELHI: Most analysts on Dalal Street do not expect the market to revisit March lows in the second half of this calendar, though many expect the benchmark indices to correct a fair bit from their current levels.

But should India to resort to another round of lockdown due to a spike in virus cases, possibilities are wide open. That’s the finding of a survey that ETMarkets.com conducted among a dozen brokerages this past week.

India has been reporting record number of daily virus infections over the past few weeks, and the total number of cases has already topped the 5 lakh mark. Only the US, Brazil and Russia have higher Covid-19 cases than India.

While the state of Assam has imposed a complete lockdown in capital Guwahati, there are hints of similar measures in Hyderabad by Telangana. An ET report said Maharashtra government officials feel Mumbai may need to further tighten lockdown measures in view of the continuous spike in Covid-19 cases.

A 35 per cent rebound in the benchmark equity indices from their March lows has largely been on the premise that the economy will be ‘unlocked’ sooner than later. This has drawn good foreign portfolio flows to Indian equity and debt. Recent commentaries from banks and NBFCs have also been promising.

But while countries like China have started seeing the second wave of virus infection, in India the first wave is still under way.

“At this point, it seems quite unlikely that the market will visit the March lows, but there are chances of a significant correction if there is a major second wave. Another major lockdown could also take the indices to March 2020 lows," said Naveen Kulkarni, Chief Investment Officer at Axis Securities.

Hemang Jani of Motial Oswal said Nifty50 might have made a short-term bottom at 7,500 level, which is reflected in the cooling of India VIX from its 11-year high of 87 hit in March to 30 level now.

"However, Covid-19 has become one of the biggest threats to the global economy and financial markets in many decades. While the first round of the pandemic spread has caused havoc across economies, there is fear of a second wave. The earnings season and management commentaries so far suggest more volatility and disruption in earnings ahead. A reversal of FII flows has clearly helped investor sentiment at the margin. It remains to be seen whether these flows continue,” he said.

For now, there are several factors at play. The first and foremost is the fact that there is no other asset class for investors to look at now.

“The outlook for the real estate sector is weak due to severe deflationary conditions. Gold has already rallied substantially. Fixed income securities have offered very poor returns. In the absence of alternate investment opportunities and huge liquidity in the system, fresh buying would emerge if the market falls 15-20 per cent from the current levels. However, if FIIs start selling anywhere close to 5 per cent of their holdings in Indian equities, the domestic market can easily revisit its March lows,” said G Chokkalingam, Founder of Equinomics Research and Advisory.

He said around $13 billion FII selling in domestic equities during the Lehman crisis had brought down Sensex by about 60 per cent. But this time around, an $8 billion sale post coronavirus spread led to about 38 per cent decline in market.

Umesh Shah of Samco Securities anticipated a fall ahead in the market, but is not sure if it would take indices to March lows.

“The trigger could be anything from escalation of India-China tensions to a second wave of Covid-19 cases around the world or a delay in getting a vaccine or for that matter the US elections,” he said.

Jani said the market direction would depend on the spread and intensity of Covid-19 cases, development around Covid vaccine and incremental government actions to support the economy.

Siddharth Sedani of Anand Rathi Shares and Stock Brokers, Deepak Jasani of HDFC Securities and Vinod Nair of Geojit Financial Services ruled out the possibility of the market going back to March lows in the near future.