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    Expect market to correct significantly around June-end: Inditrade Capital

    Synopsis

    Expecting a decent set of numbers from Reliance, says Group Chairman Sudip Bandyopadhyay.

    ETMarkets.com
    As far as HUL is concerned, I think there will be some minor impact as far as sales is concerned because of the COVID-19.

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    Are you surprised by the move in the market because we surely are? The reality on ground does not seem to be matching up with market rates.
    You are absolutely right. I think pretty much all of us are a bit taken aback at the pace of the rally. One has to factor in the expectation that opening the lockdown in a phased manner at least is round the corner. That is pretty much what is happening in different European countries. I understand that the US is also talking about lifting the lockdown or major restrictions by 15 May. 11 May is the day for many other European countries. We are talking about some kind of relaxation in India being announced so that some of us can start at least going back and leading our lives from 4 May.

    So there is a hope around and market factors in this hope. Also, one more factor I must also mention here is that there is enough and more liquidity in the system, both domestic as well as global which is waiting to come to the market. Also, this week, Japanese central bank, ECB, the US Fed all of them are meeting and expectations are building for further relaxation and further injection of liquidity in the system in those economies and as we know, eventually money will find its own destination and India and emerging markets definitely can be a destination provided we start getting out of the lockdown and start the recovery process.

    Do you think one has missed the boat or do you think that these rates will somewhere stabilize and there are still many opportunities out there?
    You are absolutely right. The fear of missing out is a huge thing which drives investors globally and that is true not only for retail investors, but even institutional investors; mutual funds need to because they have to declare NAV on a periodic basis and if they miss out on a rally, then their performance goes down. So yes, FOMO is real.

    But having said that, the way we look at it if you are a little long time investor, if you are looking at medium- to long-term, I think it is extremely difficult to catch the bottom. Nobody can catch the bottom. You have to be extremely lucky to be buying at 7,500 levels, which most of us did not. But there is no harm in buying good quality shares even at current levels because remember, we are looking from 7,500 and trying to establish how far we have moved up but we can look at from where we were in early February or end January and from there, we have come down significantly. So we came down 30-35% and we have moved up another 20% from the levels we had come down to. That is the reality.

    The other thing I want to point out here we have not seen the last of the corrections. Yes, I think we will not go back to 7,500 but a significant dip can come sometime. Our belief is it will come around June end or July beginning. That is pretty much what happened if you remember in 2008 as well. We saw a huge dip and again after that the rally came and subsequently in Jan-Feb 2009, there was a huge correction. Now that was pretty much backed on sentiments.

    Here I think the ground reality will hit the investors. March quarter or Q4 we had about 10-15 days loss of work and shutdown whereas in Q1 I think we have already kind of spent one month indoors. Even if we start on 4 May, I am assuming 70-80% of the country will be able to go back to work on 4 May; that will still take at least one, one and a half months. So Q1 is pretty much written off and that will start getting reflected in the corporate results for the Q1 and markets will start factoring in that as well as. For the financial services, the asset quality issues will start when the moratorium period gets over. So I am a little scared about the June-July period. At this stage, there is no need to panic. I think it is a decent rally. We will keep inching upwards. If the lockdown actually gets lifted on 4 May, significantly at least, we will see a further rally and I would not be surprised if we cross 10,000.

    What is the expectation from Reliance Industries?
    I think the rights issue part is that they have committed that by 31 March 2021, they will be a debt-free company. The Facebook deal helps them in that direction. The BP deal also to an extent helps; probably there are few more deals in the working but definitely, they need a significant cash infusion to make themselves debt-free and that is towards this direction.

    As far as the results are concerned, we know that telecom should be by and large intact. It should not get affected because of the COVID-19 situation. So the Jio standalone earnings should be on the expected lines.

    As far as Reliance Retail is concerned, it will probably clock about 50-60% of its turnover. That is for the next quarter but in this quarter, the quarter gone by, they will be about 80-85% of their usual turnover considering 15-20 days of disruption in business. As far as petrochem and refining is concerned, we know oil is at all time low and the refining margins are lower but Reliance has the capacity to refine complex crude and the unique feature of Reliance is that for them, the crude price is a pass through. It does not really affect the margins and because they can process complex crude, I think their refining margin has always been significantly higher than the Singapore GRM; that should continue here.

    Overall, we expect a decent set of numbers from Reliance. Petrochem was under pressure last quarter; it will be under pressure this quarter as well. But overall, it should be a decent set of numbers and I do not see a major reason for any disappointment on the Reliance numbers.

    As far as HUL is concerned, I think there will be some minor impact as far as sales is concerned because of the COVID-19 because there was a major disruption in the last 15 days of the quarter but nothing beyond that. Unilever globally has been talking about slowdown and their forecasts are not really encouraging. In fact, they have refused to give a forecast but that is on the back of the next quarter and what is going to happen. As far as the quarter gone by is concerned, I think it should be by and large intact.

    Do you think one could look at airlines and exhibition stocks because at some point, people will flock back to movie theatres and again you will have Inox and PVR see those hay days?
    Yes, I agree to an extent but I think I will wait and watch. Look, there is going to be fundamental change in business model as far as airline and exhibition stocks like PVR and Inox are concerned because social distancing will become a norm and under the social distancing structure, the configuration of sitting arrangement whether it is inside a movie theatre or in an aircraft probably will have to undergo a change. And if that is so, then I think the revenue model will have to be reworked by both these industries as they stand today

    Yes, there is some excitement and if you are really an aggressive investor probably somebody is taking a position in these industries at current levels but I will prefer to wait and watch. There are other opportunities and many of these opportunities are worth looking at. I have been mentioning the financial services, select financial services companies where the correction has been brutal but recovery will definitely come. Their balance sheets are strong, their business models are solid and I think some of the smaller banks and financial services companies will be a better bet for value appreciation at this juncture rather than going for airlines or an exhibition company stock.

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    1 Comment on this Story

    sankaran Perikamana36 days ago
    Its funny how experts are wrong all the time ;-) .The index has crossed 11500 and no sign of correction.
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