Market will continue to give great entry and exit to traders who are willing to buy at dips and sell at rally
During the last 15 days the market has been in a roller coaster ride with the Nifty 50 index from 10,900 levels making a low of 10,600 to again move back to 10950 levels towards the end of the week. While nothing much has changed in term of the index, there has been a change in the stock price of many companies. The good news for the street is corporate earnings are getting better and companies with good performance are being rewarded by the street and companies that have disappointed in terms of earnings or have corporate governance issues is being punished hard. In short, weak has become weaker and good ones have been rewarded by the D-street. IT, private banks and consumption companies have come out with good numbers, while auto, cement and metals have come out with muted results for the quarter ending December 2018.
Meanwhile, the Budget as expected has been populist and there wasn't any big disappointment. Rather the Budget leaves the larger population with more money in their hands by giving full tax exemption for the mass earnings up to Rs 5 lakh per annum and giving Rs 6,000 per annum to nearly 12 crore farmers. While it has been a populist budget for the mass, from an economist's perspective it hasn't been a great one given the uncertainty in GST collections and uncertainty over macro factors. With the opposition joining hands to take on the current government, the market will be highly volatile till the general elections. The fear of a stable government will have a huge bearing on the market.
The global equity markets including oil continue to be in consolidation mode. Markets globally are closely watching the outcome of the trade war negotiations between the US and China. Many global companies have already revised their profit outlooks downwards, citing signals of global slowdown.
Back home we have seen huge price destruction last week in some companies on corporate governance issues. This clearly shows that street is not willing to buy anything that is available at low valuations but there are concerns about the health of the balance sheet and corporate governance, and same time willing to give premium valuation to companies with good and stable earnings with good corporate governance and management.
We can see our own economy slowing down a bit with sluggish auto sales numbers. In the long-run, whichever government comes nothing much will change the fundamentals for companies with good and clean balance sheet, but in the short term the fear of stable government will drive the market.
We continue to advise retail investors to avoid shopping during these volatile times. If one must invest it is better to stick with large-cap stocks. Market will continue to give great entry and exit to traders who are willing to buy at dips and sell at rally. Private banks, IT and select pharma looks good for trading and one can buy on dips. Auto should be avoided, and any upside or rally should be used to exit.
The writer is head- privilege client group, Reliance Securities
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