Equity Markets – Our Views

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Despite, the technical pattern on Friday that suggests a bottom. (-10% at the start & closing up 4%), we feel the markets will be choppy going forward depending on developments on Corona front.

In view of the sharp increases in Europe’s infected numbers over the week end, to over 30,000 numbers in France, Germany, Italy and Spain (put together), markets are likely to open lower on Monday, though this increase is somewhat expected as Europe has moved into stage 3.

Europe has kind of become the new epicentre for this virus. USA numbers should see significant increases in the coming days, though with necessary steps being taken it should not spiral out of control. India is the wild card. However, we expect that it should come out good, as action has been initiated at earlier stage.

With all these, fear can further accentuate anytime.

However, markets should draw confidence from following factors:

(1) That the shutdown in Europe and USA will help contain the spread of Corona, like it was contained in China and Korea.

(2) The market is also keenly watching the monetary and fiscal stimulus that are being announced all over the globe.

(3) At the same time, Indian markets are trading at extremely attractive valuation:

  1. a)    Price to Book ratio at NIFTY 8500 will be 2, which is close to 2008 Levels (Lehman Crisis)
  2. b)    Current Market Cap to GDP at 50% is also close to 2008 lows
  3. c)    On a PE basis we are at nearly 16x trailing which is also attractive

Net-Net, we will continue nibbling at NIFTY level of 9500 or Lower from medium / long term perspective. we will caution though, that it’s impossible to pick a bottom in one of the most volatile markets in recent times.

An investor should be aware that there are significant short-term risk and NIFTY can very easily go to significantly lower levels in the short run. However, with fear factor at unprecedented levels, in all likelihood this may well turn out to be one of the best times to invest from longer perspective.

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