RBI measures are good; markets will recover only when Covid-19 cases dip

The measures announced by the Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday are good. It shows the intent of the central bank to fight the economic crisis posed by the Coronavirus (Covid-19) pandemic as the governor said - "we will do whatever it takes." It is possible that the central bank or government will announce further measures / economic package in the days to come to support the economy.

The market, however, won't recover by these economic measures as these are not the remedies it is looking for. A sustainable rally in the markets will only come if there is a drug that can fight the Covid-19 disease or if the number of confirmed cases flattens and start falling. Until that happens, the market will keep meandering in a range.

The Nifty 50 has been moving in the range of 8,900-9,000 on the lower side and 9,200-9,300 on the higher side. So, 300-500 point-range on the Nifty 50 and around 800-1,500 points on the S&P BSE Sensex is the range that we will continue to see for a while. I don't see a breakout or a breakdown from this range. Nifty is unlikely to see a new low, provided there are no negative surprises as regards Covid-19 cases.

As regards earnings, March quarter of the financial year 2019-20 (Q4FY20) will be a washout. Even the first quarter of financial year 2020-21 (FY21) will remain subdued. However, from the second quarter onwards, some recovery could be seen. There will be a sector-specific impact where some sectors will take time to recover, and some do better in terms of earnings.

That said, pharma should continue to do well. Fast-moving consumer goods (FMCG), consumer durables, consumer discretionary, are expected to fare better. Further, private sector banks and information technology (IT) will also do well. With the resumption of Construction activities, Cement is also seen doing well.

On the other hand, real estate, infrastructure companies will be facing a tough time. Growth in the power sector will be flattish while the companies related to travel and tourism - hospitality, hotels, and aviation will continue to underperform.

====================

Gaurang Shah is head- investment strategist at Geojit Financial Services. Views are personal

(As told to Swati Verma)