Time to Churn your Portfolio
The markets are behaving as if there is absolute normalcy on ground and there is no pandemic 2.0 affecting daily business activity. The point to note here is that the reality on-ground is looking grim right now and most of the states in India are suffering from a renewed attack of the pandemic as we speak. However, the equity markets are forward looking and are hence factoring normalcy to a great extent in the coming months. That’s because in the past too when the corona virus’ first wave hit the world, there eventually was a way out. The virus is a conquerable problem; so, when we come back, the economy is likely to return with renewed optimism.
Furthermore, the whole system is alarmed now and it is possible that the solution is in sight and we may see minimal damage to economic activity going forward. Furthermore, markets have been buoyed amid superior Q4 results and vaccine optimism, the second phase of which is to begin from May 1, 2021 that will include everyone above 18+. What is worth noting is the fact that the corporates have adjusted themselves very well and they now know the pressure points and how to manage the crisis situation better than the previous year.
Hence, there is no panic when it comes to the businesses of the listed entities. Of course, there will be a hit in demand but not something that the corporates will not be able to manage. Most of the economies, both developed and developing, are showing signs of solid recovery from the pandemic 1.0. Asian Development Bank has pegged 11 per cent GDP growth for India for FY22. That is a good sign. Considering the fact that the global markets, especially S & P 500, are close to all-time highs, the Indian markets are expected to do some catching up in the coming month even as there is a good probability of the Sensex coming closer to breaching its all-time high of 52,516 it made for itself on February 15 this year.
Given the current scenario, it is logical to remain overweight on the defensives i.e. IT and pharmaceutical companies. However, we have seen that the cyclical stocks can really benefit when the economic recovery is in progress. It is the right time to book profits in pockets where the stock prices have run up high and are unsustainable. It is time to churn your portfolio and include stocks that can benefit from the steep economic recovery. In such times the stocks that stand to benefit from the general rise in price level can be looked at aggressively.
Stocks in the commodity sector usually benefit in an inflationary environment. Hunt for value in the growth stocks. It may sound difficult, but it is possible to get high growth stocks that are undervalued if you apply your equity research skill judiciously. As far as Nifty goes it has witnessed a massive rally of almost 900 points from the lows of 14,151 in just six trading sessions and this has assisted the index to register a new swing high. The faster pace of retracement indicates structural improvement that augurs well for the next leg of up-move.
Consequently, any cooling off henceforth could be capitalised as a buying opportunity in quality stocks. The trend in the broader market is comforting and the relative outperformance by broader markets may last throughout the year as we believe the last two months’ consolidation has facilitated Nifty Mid-Cap and Small-Cap indices to form a higher base near about its 50-EMA, which has been held since June 2020. However, one has to stay away from excessive valuation stocks in the mid-cap and small-cap space.
