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NEW DELHI: Ever imagine the stock market would rally after hitting a 10 per cent lower circuit limit? BSE benchmark Sensex staged such a coup on Friday, recouping nearly 3,960 points from day’s low after a 45-minute trading halt.
While investors were bracing for another lower circuit of 15 per cent on the domestic indices, something happened in the 45-minute trading halt, which changed the sentiment altogether.
What happened today? Here are the possible reasons.
Recovery in US stock futuresDow futures for March delivery, which had been trading nearly 700 points lower, erased entire losses and traded 500 points higher at 21,396 around 10 am this morning.
The sharp rebound in US futures, especially after the index hit the 10 per cent circuit overnight, eased investor concerns some bit.
Most Asian markets were, however, down 2-5 per cent recovering from an up to 10 per cent plunge in the morning trade.
Short covering in bank stocksChandan Taparia of Motilal Oswal Securities said after the initial panic in the market, long build-up was seen in Nifty.
What, however, lifted the index sharply was the short coverings in Nifty Bank.
“There are no major changes in call or put concentration though, as investors are fearful after what happened earlier in the day,” Taparia said.
Sebi assurance on risk managementSEBI and stock exchanges have a robust risk management framework in place, which automatically gets triggered in response to movement in the indices as well as stocks in the cash and derivatives market, the market regulator said in a statement following drastic fall in Sensex and Nifty.
The market regulator added that some of these measures include Value at Risk (VaR) margin with initial margin to cover 99 per cent risk of a transaction and extreme loss margin to cover the residual risk of a transaction.
Further drop in Crude oil pricesInvestors also took comfort in the fact that oil prices headed for the biggest weekly loss since 1991 and US crude headed for its worst week since 2008.
Brent crude was down 47 cents, or 1.4 per cent, at $32.75 a barrel on Friday after falling more than 7 per cent on Thursday.
A major crash in crude oil prices of such a magnitude is positive for India due to its heavy reliance on imported crude.
Some estimates pegged $7-8 billion savings for India for every $5 a barrel fall in oil prices.
Low-level buyingAnalysts largely expected Nifty to bottom out in the 8,100-8,800 range after it entered bear market on Thursday.
The average came out at 8,450.
Nifty hit a low of 8,555 Friday morning.
AFTER THE MARKET MAYHEM, WHAT?13 Mar, 2020Equities can move up eventually, driven by the current Supernova of liquidity.
GDP growth is likely to remain weak for some time.
Two historical templates can be looked at: 1) 2017 - market up-move accompanied by improving GDP growth.
Stocks with higher leverage outperformed 2) 2019 - equities up without GDP acceleration.
Stocks with high leverage lagged.
Any equity rebound now will look more like 2019, in our view - a weak economy drives topline concerns, in which case leverage will still be bad.WHAT TO DO NOW: BofA Global Research13 Mar, 2020Buy? Yes.
The market is down 20% from 10-Feb; the Index is now at our fair value est.
from two years ago.
Headline MXIN forward P/E of 14.7 times is back to 2014 levels, (below LT average); while global monetary stimulus (that is supportive of valuations) is on overdrive.
Fiscal expansion can help sentiment, but is a driver of EPS; not P/E.
When to Buy? Not yet.
Sentiment around COVID-19 is driving global equities.
Several large economies still need to contain the virus.
This may require more drastic lockdowns and economic checks.
That could drive a market undershoot.
WHAT TO DO NOW: BofA Global Research13 Mar, 2020What to Buy? Two approaches:
a) a rebound in stocks that have fallen the most (exporters / global cyclical) + large cap stocks that have contributed most to the index's fall (RIL, HDFC, ICICI, Infosys).
This is short term and opportunistic, and is a timing problem; but
b) without economic growth, subsequent performance will remain with a narrow set of Quality / Low Leverage stocks.
On both counts, Indian Private banks stack up well (down c.12-39%).
HDFCB, ICICIB and IIB are Buy rated.
WHAT TO DO NOW: ASK Wealth Advisors13 Mar, 2020>> Stagger your equity exposure, hedge it.
>> New Money: – Market levels (and valuations) are interesting, but more volatility is on the way.
A calibrated staggered entry – the cliched “buy the dips” in other words – would be the most optimum call.
>> Existing allocations (those who are over/adequately allocated): – One needs to ride out the storm, unless there is significant over-allocation (20-30% above long-term objective).
While options are expensive, there is scope to use hedges to protect portfolio positions.
Stock Market
What gave Sensex a 4,000-point lift from daylows It's short covering, stupid
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