Investors, be cautious! Do not let COVID-19 valuations sway you!

The global equity markets have faced several issues over the last two years. Global economic activity has witnessed a decline and constant cuts in the growth forecast, recently. It further took a strong hit after recent Coronavirus break out in China.

The world’s second biggest economy has seen a sharp surge in the number of deaths and confirmed cases of the virus. This has forced large-scale shut down in many industries, which would certainly impact few Indian sectors and companies that have an exposure in China.

The biggest worrisome factor is for Tata Motors. Its international business entity Jaguar Land Rover (JLR) has already faced issues with sales related to China specific region. It has nearly 15 per cent revenue exposure in China which would certainly get affected further in the recent quarters. The stock has already corrected from its highs of Rs 550 on BSE in 2016 to Rs 151 recently. Though, the valuations of the stock look very attractive, the current situation in China can further delay any revival for the stock. The stock of Tata Motors has corrected nearly 18 per cent since January 2020 till date.

Few other major players such as Vedanta and Motherson Sumi Systems, which have an exposure in the terms of revenue of 4.7 per cent and 7 per cent, have also seen a sharp drop in the stock returns over the last two months. Motherson Sumi has declined as much as 21 per cent while, Vedanta dropped by 14 per cent in just two months.

Going ahead, though valuations might look attractive but investors need to take a cautious approach before entering the stocks.