History suggests that the market always creates great opportunity once in every decade whether it was 2000’s IT boom, 2008’s global financial crisis or the current COVID-19 crash. In the COVID-19 sell-off the index corrected around 40% in just 2 months from its peak of 12,430 levels. Globally we have gone through multiple viruses scares over the last two decades. And the experience has been that while business disruptions lead to near-term pressure on earnings and cash flows, good quality solid businesses adjust and rebound quickly as things begin to settle down.
I believe that as time passes COVID-19 curve will flatten across the countries as it has in China and South Korea. Even Italy has started to show some indications of flattening of the COVID curve. Moreover, the chances for finding a cure will keep rising. Thus the current challenges also present with one of the biggest opportunity to accumulate assets at reasonable valuations. Be fearful when others are greedy and be greedy when others are fearful. One thing is certain that there is a lot of fear in equity markets across the globe.
• The Nifty is trading at a trailing P/E of 16.2x the lowest in 6 years and trailing P/B of 2.1x is at its lowest since the Global Financial Crisis. India’s market capitalisation/GDP ratio has declined sharply from 79% as on FY19 to 54% FY20E GDP which is much below its long-term average of 75% and closer to the levels last seen during FY05 and FY09. Markets are currently trading at attractive valuations and hence this gives good opportunity to the long term investors to accumulate quality stocks at good valuations. It is advised buying quality stocks in a gradual manner instead of bulk purchases.
• VIX India (Volatility Index) made high of 86.64 and came down 36% to 55.30 which is sign we are near to bottom, base formation is happening and giving stability to market and it will give confidence to accumulate quality stocks. VIX to correct more downward which implies a bounce back in the market.
Markets are oversold so we have given buy call to our clients at Nifty 8260 with short term target of 8640/9032/9645/10800. We are bullish in market at these valuations as valuations are very cheap and this Covid-19 pandemic will get resolved within a period of a month in India as we are expecting cure very soon.
FOR INVESTORS THIS IS BUYING OPPORTUNITY ACCOUMLATE QUALITY STOCKS ON EVERY DIP, AS THIS VOLATILITY IS BECAUSE OF MAJOR EVENT BUT FUNDAMENTALS ARE VERY MUCH INTACT. VOLATILITY IS FRIEND OF INVESTOR.