Coronavirus-Sparked Selloff: Time To Start Bottom Fishing For Stocks?
Here’s how market veterans are navigating their equity investments amid threat from the novel coronavirus and a global selloff.
Indian and global equity markets will likely fall further over the next few weeks as the world gets a better idea of the extent and impact of the novel coronavirus, market veterans BloombergQuint spoke with said.
“I could see this easily going another 5-10 percent but it may not happen as quickly as the last 10 percent has happened,” Arvind Sanger, managing partner at Geosphere Capital Management, said. “I definitely don’t think this is the time to jump in with both hands and start bottom fishing,” he said.
Investor wealth worth nearly Rs 5 lakh crore was wiped off today—Rs 4 lakh crore within the first 15 minutes of the opening, according to data available on BSE. Indian equities extended declines for the sixth straight session, with the S&P BSE Sensex falling as much as 3.2 percent and the NSE Nifty 50 tumbling up to 3.31 percent. Nifty 50’s Relative Strength Index, according to analysts, has fallen below 30 into the oversold zone.
The Indian indices mirrored the global peers that are set for their worst week since the 2008 crisis, down more than 10 percent from this month’s peak, as the coronavirus spreads from China to across the world.
And the market veterans aren’t ruling out the possibility of a transmission into India.
Geosphere’s Sanger said the idea that coronavirus would not come to India is a wrong one. It will affect Indian companies and the economy as much as others that are a part of the global supply chain, he said. “There’s so much more focus about stuff that’s going on in Delhi that there is no focus on coronavirus and preparation for it.”
Seth Freeman, senior managing director at Glassranter Advisory, agreed. “If it begins to break out in India, because of the high concentration of population, it could spread very easily,” he said. And as investors pull money out of emerging markets and invest in safe havens, Freeman said a selloff in the emerging market index would impact the allocation of Indian stocks to that index. “I can see this getting significantly worse over the next few weeks just because of the unknowns.”
The uncertainty around the virus outbreak is also a factor for Jyotivardhan Jaipuria, founder and chief executive officer at Valentis Advisors. Despite the market still being expensive, Jaipuria said the correction had given investors a buying opportunity. “We are selectively nibbling.”
This Too Shall Pass
While we may not have seen the end of the market sell-off, investors that are willing to look through that, are looking this as a time-defined event, said James Sullivan, head of Asia ex-Japan Equity Research and head of APAC Telecom Research at JP Morgan.
He even sees a clear path ahead.
“We absolutely must see both earnings and GDP cuts over the course of the next couple of weeks and that will likely drag on the markets. The interesting thing here, from my perspective is, while those cuts occur, we are finally starting to see some high frequency equity metrics out of China start to stabilise,” he said, adding while demand may be lost in the first half of 2020, second half of the year is likely to see a recovery after the impact peaks and stimulus from governments and central banks kicks in.
Another important argument is that while markets have seen a significant correction, they are still at elevated levels, he said. “The starting point from a market’s perspective here is really important because we are looking at very stretched markets.”
ASK Investment Managers’ chief investment officer Prateek Agarwal said the fall in markets this month and today does seem to be out of place.
“Frankly, as an economy, India won't get impacted overall as crude oil prices have dropped sharply over the last 10 days,” he said. “This saves us more dollars in terms of imports than it costs us in terms of exports. So, with whatever, is happening, GDP number doesn’t get impacted.”
Nilesh Shah, managing director and chief executive officer of Envision Capital, said one has to take advantage of this price decline to basically add to these names, accumulate them for the long term. “We’ve had these kind of situations before in the last 10-20 events...I think this will also pass.”
Shah said the indices are close their support zones, making this a good time to be “constructive” and “positive”.