Covid crisis will dictate markets

Nervousness over the rising Covid cases and increased restrictions in several State governments, weak rupee and continued FII selling dented sentiment; and market corrected for the third consecutive week during the week ended.

The Sensex fell 953.58 points, or 1.95 per cent, to close the week at 47,878.45, and the Nifty declined 276.50 points, or 1.89 per cent, to 14,341.35. However, speculative buying ahead of Q4 earnings in several midcap and smallcap counters was seen. Outperforming the benchmark indices, the BSE Midcap index was down 1 per cent and Smallcap index dipped 0.06 per cent. After robust buying in previous six months, FIIs have been net sellers to the tune of over Rs 7,500 crore till date in April.

Despite DIIs playing a supportive role for the market with net buying of nearly Rs 8,000 crore in April, uncertainty gripped the market. Travel bans from India being imposed by several countries further dampened sentiment. India's giant second wave of Covid is a disaster for it and the world also, say trackers of global developments. The government's distraction of politics and complacency has amplified the surge. Ways must quickly be found to ramp up vaccine production. There is no telling how much worse India's current Covid-19 wave will get, or how long it will last.

Apart from largecaps like Tech Mahindra, Axis Bank, Bajaj Finance, Britannia Industries, Maruti Suzuki India, Bajaj Finserv, Bajaj Auto, Hindustan Unilever, Titan Company, InduSind Bank, Reliance Industries, SBI Cards and Payment Services, HDFC Life Insurance Company, HDFC Asset Management Company and ABB India: several active midcaps and smallcaps like Delta Corp, AU Small Finance Bank, IndiaMart Intermesh, Zen Technologies, Equitas Small Finance Bank and others will release their Q4 earnings.In the near term market direction will be dictated by Covid developments, Q4 earnings, FII activity, rupee-dollar movement and US Fed meeting commentary in the two-day meeting - April 27-28. Stock-specific movements based on results can be expected in the market.

Heard on the street

Major companies are sitting on a mountain of cash: a decadelong buildup was given another sharp lift by precautionary measures taken during the pandemic. Those balances are worth monitoring, because they have important implications for investment returns in the future.There are nearly sixty companies having more than Rs 25,000 crore of currency and deposits as reserves, about twice the level of a decade ago.What they all have in common is that they have risen considerably, and not just due to last year's extreme circumstances. Cash balances of several corporations in different country were climbing for a decade before the pandemic began, defying repeated suggestions that they would be deployed for buybacks or investment. Corporate treasurers then went on a borrowing spree last year building up precautionary cash piles.It is worth looking to Japan to see what the consequences might be. Its cash buildup began in the 1990s, during the country's famous lost decade. The cash mountain has weighed down returns on equity for shareholders, since companies are asset heavy and cash assets yield little to nothing.

In every country, large corporate cash balances are often eyed hungrily by analysts who wonder how the pile might be deployed. On account of activist investors, corporate governance has become more shareholder friendly in recent years in most countries. But the overall cash buildup still effectively means that companies have looked at the investment options available and found them wanting. When a company determines that sitting on near zero-yielding assets is the best use of their funds, it paints a very dim picture of their collective view of the economy's future. If the economy recovers rapidly, companies will hopefully instead decide that capital spending is a better use for funds. Buybacks and dividend will probably recover, but their considerable growth during the decade after the global financial crisis wasn't enough to prevent the accumulation of cash.Investors should keep a close eye on where overall levels settle: if they stay up here where the air is thin, that will be a dispiriting signal about the future.

Futures & options/ sector watch

Ahead of the settlement week, the derivative segment witnessed volatile trading.The April futures and options contracts will expire on Thursday. Punters expect heightened volatility due to settlements of trade. Keep a watch on the rollover of positions in different counters. True to predictions rising Covid numbers have put Pharma counters back in limelight. Largecappharma counters like Sun Pharma, Cadila, Dr Reddy's and Aurobindo look good for further gains from current levels. Sharp decline in rupee has triggered renewed interest in technology stocks.

Q4 results of major IT companies reveal robust order additions and good visibility of earnings. Use corrections to buy TCS, Infosys, HCL Tech and Wipro. Auto stocks will also be in focus in the coming week as the monthly sales data for April will be released by companies. Industry observers expect modest decline in numbers in several companies. Add on declines Tata Motors, Hero Moto Corp, Maruti Suzuki, Eicher Motors and TVS Motor.

Stock futures looking goodare Apollo Hospitals, Cadila Health, Granules, SBI Life, SAIL, NavinFlouro and UBL. Stock futures looking weak areAshok Leyland, BhartiAirtel, Britannia, Biocon, Escorts and Ultratech.

Stock picks

Time Technoplast Ltd (Time Tech) is a multinational conglomerate with operations in Bahrain, Egypt, Indonesia, India, Malaysia, UAE, Taiwan, Thailand, Vietnam, Saudi Arabia & USA is a leading manufacturer of polymer products. The company's portfolio consists of technically driven innovative products catering to growing industry segments like, industrial packaging solutions, Lifestyle Products, Automotive Components, Healthcare Products, Infrastructure / Construction related products, Material Handling Solutions & Composite Cylinders. Manufacturing Polymer drums / barrels, Jerry cans and Pails for varied packaging requirements for over 900 institutional customers, the company is the largest manufacturer of Industrial Packaging in Asia and MENA Region. With increasing strategic tie-ups with MNCs across different countries due to significant presence in the Asia and MENA Region, the company is market leader in 8 out of 11 countries in Industrial Packaging. The company is 3rd largest manufacturer in the value added products like Intermediate Bulk Containers and has 2nd largest capacity worldwide in Composite Cylinders. The company has developed Air tanks for vehicle air brake system and Diesel Exhaust Fluid (DEF) dispenser tanks that are designed to ward off the harmful impact of corrosion for commercial vehicles.The company is looking at increased business opportunities from Malaysia, Thailand and Vietnam where various chemical companies are opening up a second base post-US-China trade issues and Covid-19 related supply disruptions.

Why we are recommending the stock

• Supply of newly launched new generation multilayer PE pipes for power / communication cable duct with silicon in-lining continues is giving overwhelming business. The pipes/ducts have substantial business potential especially in Smart Cities.

• Innovative new applications of the MOX films. The Company is launching new products in the market like Truck covers, Pond Liners, Mulching Film & Poly house Films.

• Diversification into automotive segment.

• The company is world class player in several of its products.

Buy between Rs70-75 for price target of Rs150 in next twelve months. Prefer a stop loss of Rs60 in the event of a sharp correction in markets.

(The author is a stock market expert. He is former vice chairman of AP Planning Board)