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Market Outlook | Stocks to buy: Global financial firm Credit Suisse believes that the Indian equity market may see profit booking in coming weeks amid soaring Covid cases in the country. However, it advised investors to use the correction as a buying opportunity from a 6-9 month perspective.
The benchmark equity indices BSE Sensex and NSE Nifty plunged over half a per cent on Thursday after the country’s recorded the highest single-day addition of over 3 lakh Covid cases. The 30-share Sensex was down 353 points, or 0.74%, to 47,357 at around 9.35 am (IST). On the other hand, the 50-share Nifty index was down 84 points, or 0.59%, at 14,212.
“While the second wave of the Covid-19 pandemic in India and subsequent restrictions may lead to some growth worries, we believe corporates are better prepared this time,” Credit Suisse said.
From an asset allocation perspective, Credit Suisse believes that equity still offers a better hedge against rising inflation. It recommends investors use the ongoing weakness as a buying opportunity. “We continue to prefer cyclicals over defensives and mid-caps over large caps on expectations of a sharp recovery in the second half of the year,” it said.
The overseas firm continues to prefer large banks, industrials and export-sensitive sectors like metals and chemicals. “While the partial lockdowns and restrictions could impact some businesses very hard, the larger and well-managed companies could gain further market share. Also, some of the lost demand in the next few weeks could reverse once the lockdown is lifted. We continue to expect a strong macro recovery in the second half of the year on expectation of pick-up in the vaccination drive in the next few months and building immunity,” said Credit Suisse.
Going ahead, all eyes will be on the banking and financial sector in the Q4 earnings season. Banks and NBFCs will have to set aside additional provisioning in light of the second wave. Auto companies could continue to experience margin pressure and might have to announce price hikes in coming weeks. “Export-dependent sectors such as pharma, chemicals, commodities and sectors with better pricing power, such as FMCG and cement, could outperform in the near term,” Credit Suisse added.