Q) Market saw a sharp downtick on Friday after RBI MPC outcome. What was the reason why markets fell – is it banks or the negative growth rate which weighed on markets?
A) Banking stocks witnessed selling after the RBI extended moratorium granted on loans by another three months. Although this measure gives relief to borrowers, it adds significant uncertainty to the bank’s asset quality and earnings in the near-term.Weak global markets also impacted the sentiments. Among Nifty stocks, Axis Bank was the top loser, down 5.67 percent followed by HDFC and Bajaj Auto, which fell 4.99 percent and 3.28 percent respectively.The Bank Nifty failed to hold its crucial support of 17,400 and slipped towards 17,100. The selling pressure witnessed in Bank Nifty eventually led to Nifty’s decline by the end of the session.
Q) Nifty Bank fell more than 2% on Friday. What should investors do if they have a bank-heavy portfolio?
A) The Reserve Bank of India (RBI) had surprised with another rate cut, and most of the analysts have expected that the announcement would be about moratorium alone but the RBI came with a rate cut. The RBI had focused on two elements the rate cut and moratorium.
On Friday the Reserve Bank of India (RBI) has announced a rate cut of 40 basis points and extended moratorium period by another three months.
Post the announcement, the Nifty Bank was down 2.5 percent. Banking and financial service stock has been the worst hit and most of them have ended in the negative.
Few stocks like SBI Cards, Shriram City Union Finance, M&M Financial, Bajaj Finserv, and Bajaj Finance have hit their 52-week low.
An investor, who has allocated the majority to the banking and financial sector, should hold their portfolio because the market may recover in 12-18 months.
The financial sector or banking sector has been transforming from manual to technology which makes the fixed cost come down.
The new investors who want to invest in banks can take a minimum risk and can invest in HDFC, ICICI, and Kotak bank which are available at a discounted rate and have strong credit growth.
Q) What are the important events and levels on Nifty which one should track in the coming week?
A) The Nifty50 formed a Doji pattern on the daily charts and a ‘Hammer’ formation on the weekly scale after falling 1.2 percent for the week. After defending the psychologically important 9,000-mark, Nifty closed below 9,050.
In case the bulls manage to defend 8,960 with a strong close above 9,100 then they can make one more attempt to break out from the consolidation range present between 9,160 and 8,800.
Else, the Nifty may test its level of 8800 on the lower side in the coming week. Quarterly earnings and global market jitters over US-China tensions may influence investor sentiments.
Q) Negative growth is something which might have got investors a worried lot. Do you advise investors to turn conservative from aggressive in this period?
A) The RBI is alarmed by the recent economic data and the extent of damage COVID-19 has caused to the economy.
Investors are skeptical about the positive impact of additional liquidity in the system. Short duration is facing issues, but in a falling rate scenario, investors are recommended not to redeem.
A market downturn may be tempting to move your money to more conservative investments in the future. By allocating more cash toward investments such as bonds, your savings are less susceptible to wild ups and downs than if you’d invested primarily in stocks.
However, if you play it too safe, it’s far more difficult to reach your saving goals. So although the stocks may be somewhat risky in the short-term, not investing in stocks may actually be riskier long-term.
And hence, one should continue allocating some part of the surplus towards equity in a systematic manner.
Q) Any rate-sensitive stocks which could benefit the most from the RBI surprise rate cut and why?
A) The demand for the invention of the vaccines has been high and the whole world is trying to invent vaccine or drugs which can cure the pandemic. So companies like United Phosphorus Limited, Tata Chemicals may have a bullish front.
The buying behavior has been changing slowly and consumers may prefer buying online instead of offline. The consumer staple companies like HUL, ITC, Nestle, and Godrej CP may have a huge demand shortly.
The automobile companies may be benefited from the rate cut. Due to the pandemic, the people of the country try to avoid public transport and may prefer their vehicle, and with the restriction on the number of passengers can travel on a vehicle, the demand for the purchase of the vehicle will be more.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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