We believe Nifty has room to run further with Nifty resistance level near 9389 & 9580 -- all conditions are ripe for a value rally but for limited time. Agreed, this is a ‘Relief rally’ but unlikely to last long. At the moment the gyan mantra is to make hay while the sun shines. Helping sentiments are reports saying that the coronavirus curve has flattened in India. Well, just imagine the magnitude of the next rally if COVID-19 is defeated if in case solution strikes in. Well, if this fairy tale is believed to be true then Nifty could reclaim Jan2020 trends in coming 4-5 months. Now for next week’s trade, expect Nifty to trade with positive bias with resistance Nifty 9389 but we suspect Bank Nifty will be a star performer with immediate targets at 23501. We are now trading in earning session which could keep markets in range resistance.
We foresee Market focus will be more intensely focused on the stimulus support from govt and earning reports and economic data. As of now it is more unlikely that markets would retest March 23's low again (Nifty 7511) in coming few days or weeks while if govt fails on the markets hopes of special stimulus package support there would be selling pressure.
We assume RBI 2.0 executes the much needed fine-tuning measures to manage the liquidity stress. The new measures like Reverse Repo cut, Additional TLTRO and NPA classification on liquidity are aimed at channelling the liquidity to specific areas of economy. We feel quality financial institutions (NBFC) like HDFC Ltd/Cholamandalam/Bajaj Finance and few Micro Finance Institutions (MFIs); would be benefitted by this 2.0 move. RBI has targeted to ensure smooth functioning of the financial system in wake of the Covid-19 pandemic.
Mehta Equities believes that Government is on track, working on special packages and would reveal in coming days or week. We expect Government to ensure and bring up a complete package touching lowering personal income tax rate, Direct taxes, GST rates and corporate taxes to safeguard economy to survive unprecedented scenario. We feel that until a cure is found to control global health carnage, Govt has to handhold the economy by creating measures & stimulus. Globally people are talking about the world is undergoing a global recession and this recession would be different from financial crisis of 2008, it is not a financial markets recession but a demand destruction recession. If we see that US has announced a $2.2 trillion stimulus on a $20 trillion GDP base and Malaysia has mobilised close to 18% of its GDP. Hence India needs to spend more to protect our economy and it is assumed that around 3-5% of Indian GDP would be spent in coming days.
“IT Sector under performance”
IT sectors faces tough times on the back of being exposed to global economy which is under recession case. We believe that deal momentum would slowdown in coming quarters which were strong for most large IT services companies till December 2019 due to business uncertainty post the virus outbreak. However If the virus disruption lasts longer, global IT clients would be forced to rethink on IT spends which will effect IT companies to book new project contracts. It is believed that key clientele markets are US & Western Europe, which are currently in deep trouble as on date, thus raises concerns on future IT spend and business visibility. Market is pricing in a risk of significant demand destruction and ignoring benefit of Rupee depreciation effect on expected EPS and expected acceleration of digital transformation. Hence we believe IT space is attractive with favourable risk-reward for medium to long term investment. We like TCS & INFY at the current levels.