Stick to your equity allocation strategy;
increase weight on dips ….An investment strategy in times of external crisis:
The stock market is a forward-looking animal. Given that the majority of stocks already trade at frothy valuations, corrections irrespective of the reasons are bound to occur. The trigger for that this time turned out to be the second wave of Covid infections.
The domestic equity market has turned extremely volatile amid a spike in Covid-19 cases, which has dampened the prospects of a quicker economic recovery. India VIX surged over 11 percent this week, indicating nervousness among the participant investors.
While the US indices witnessed profit taking on expectations of increased taxes on companies and capital gains, India faced pressure on equities as investors looked for safer avenues. Precious metals have started seeing some momentum because of this uncertainty. Gold prices inched higher to hover near their eight-week highs as the dollar weakened. With the fear gauge creeping up, emerging economies such as ours were quick to see a pullout by FPIs.
These overseas portfolio investors have turned net sellers after six months of robust inflows. In fact, they have already pulled out some Rs 6,200 crore in April so far.
The stock market is a forward-looking animal. Given that the majority of stocks already trade at frothy valuations, corrections irrespective of the reasons are bound to occur. The trigger for that this time turned out to be the second wave of Covid infections.
Various industrial sectors are facing challenges because of the localized lockdowns and other restrictions. For instance, auto and consumer durables sectors are seeing a drop in demand due to the closure of shops and showrooms. The aviation industry was about to turn the corner and recover fully from the pandemic but is again having to deal with declining travelers and rising ATF prices.
The financial sector, too, can experience a delay in interest payments if things worsen. In such uncertain times, it would be best to remember what Peter Lynch said: “Far more money has been lost by investors preparing for corrections or trying to anticipate corrections, than in corrections themselves.”
Therefore, investors are advised to stick to their equity allocation strategies and increase weight in quality stocks from the above-mentioned sectors on every dip, as these headwinds are likely to be short-lived.
Event of the week
India’s life insurance industry registered impressive growth in new business premiums in March and ended the financial year on a high note, defying expectations of a de-growth in FY21.Top private insurers delivered a 56-120 percent growth in APE (annual premium equivalent) along with stronger volumes, largely due to last year’s low base. Margin trends have also been robust for these companies, aided by a higher mix of protection and non-participating savings products.
Investors should continue to invest in the insurance space, as the top quality players are in for the long haul and the underpenetrated nature of the industry will only bolster toplines going forward.
Technical outlook
Nifty50 closed the last week on a negative note and is now consolidating at a crucial support point. The index is trading outside its major rising channel. So the bulls will need to protect the current support, as any break below the same can trigger bearish sentiment throughout the market.
Several major stocks are showing signs of trend continuation on the upside and Bank Nifty has formed some sort of minor bottom around its short-term average on a weekly timeframe chart. However, on a cautious note, other leading global indices which had been outperforming India, are now showing signs of a pullback. We suggest traders maintain a mild bullish to sideways bias on the market and keep tight stop losses just below the market support.
Expectations for the week
Investors across the globe would keep an eye on the FOMC meeting in the coming week for any possible change in interest rates and its future guidance on inflation. Any central rate change will trickle down to other interest rates, including foreign exchange rates and bond prices, which may have a big impact on other emerging markets.
Simultaneously, the vaccination drive will pick up pace and it is expected that the focus would shift back to growth, cyclical recovery and fundamentals. We also have monthly F&O expiry next week, and traders are advised to refrain from taking aggressive bets due to the probability of whipsaws in an earnings-heavy week.
Nifty50 is at 14,567 now, up by 81 points.
HCL Tech profit down 25.6%, eyes double-digit rise in FY22
Our pipeline represents a well-balanced mix of services, geographies, industries, and so we step confidently into FY22, said C. Vijayakumar, CEO, HCL Tech.
HCL Technologies Ltd expects double-digit revenue growth in constant currency terms for FY22 in view of the positive demand environment and robust deal pipeline
HCL Technologies Ltd expects double-digit revenue growth in constant currency terms for FY22 in view of the positive demand environment and robust deal pipeline. The IT services major said earnings before interest and taxes (Ebit) margins will be in the range of 19-20%.
India’s third-largest software services firm by revenue posted a net profit of ₹2,962 crore in the March quarter, down 25.6% sequentially due to a one-time tax expense. Profit was below the ₹3,258.10 crore consensus estimate by a Bloomberg survey of 19 analysts. Revenue for the fourth quarter was up 1.8% sequentially to ₹19,642 crores, driven by its digital business or ‘Mode 2’, which contributed 23.4% to its revenue, growing 25.2% year-on-year (y-o-y) in constant currency terms. Revenue for FY21 stood at ₹75,379 crore, up 6.7% (y-o-y).
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The company’s dollar revenue grew 3% sequentially in constant currency terms to $2.69 billion aided by new deals, which hit an all-time-high total contract value (TCV) of $3.1 billion. In FY21, the new deal TCV stood at $ 7.3 billion, up 18% from a year earlier.
HCL won 19 new large deals in Q4 across industry verticals, including financial services, life sciences and healthcare, consumer goods, and manufacturing. In FY21, HCL had signed a total of 58 large deals.
“The booking and pipeline represent a well-balanced mix of service lines, geographies and industries. I am also proud to share that HCLites’ commitment resulted in a yet another all-time high customer satisfaction index in FY21. With these solid financials, a passionate employee family and a business model that has consistently proven itself to be resilient and relevant, we step confidently into FY22,” said C. Vijayakumar, president and chief executive, HCL Technologies.
Ebit margin for the fourth quarter was at 20.4%, excluding the one-time milestone bonus of ₹728 crore paid out in February.
“HCL Tech reported a largely subdued Q4 versus our expectations. We expect strong new deal TCV to propel double-digit revenue growth in FY22. Additionally, we expect the company to provide specific numerical FY22 revenue growth guidance range in Q1-Q2 FY22. We expect the company to report solid revenue recovery at 11.7% revenue CAGR (compound annual growth rate) over FY21-24 driven by consistent transformation deal wins, multi-decade experience in infrastructure management services/cloud services offerings and rising share of products and platforms business,” said Suyog Kulkarni, senior research analyst, Reliance Securities.
HCL Technologies’ attrition rate fell to 9.9% during the fourth quarter from 10.2% in the December quarter, showing that its measures to retain talent were bearing fruit. The company plans to hire 20,000 freshers in FY22 based on the demand environment, said Apparao V.V., chief human resources officer.
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As on 31 March, HCL’s full-time headcount stood at 168,977 and localization in the US was at 70.4%.
HCL Technologies declared its earnings after market hours on Friday. Ahead of its results, the shares were down 0.56%, closing at ₹955.80 on the BSE.
Our View: There is both good news and bad news- Good news: Although the pandemic pokes its ugly nose again, many companies have come out with a tangible solution i.e.,a vaccine with different names and this has obviously given due relief to the Govt, medical teams and the patients per se. Nonetheless there is a general gloom encompassing the environment, fear psychosis prevails amongst the Industrialists, Investors, Traders, Businessmen, Logistic sector apart from the Govt. authorities. The redeeming feature is that the Pharma and I.T sectors do give some ray of hope and they are fairly doing well. In the bourses, things are not that rosy and the under-current is bearish. The small investors will do well to embrace the MF route seamlessly.
Battered midcap, small cap stocks will give massive returns, says Rakesh Jhunjhunwala- Ace Investor!
Veteran investor Rakesh Jhunjhunwala of RARE Enterprises believes that India is beautifully placed to register double digit growth over the next four to five years. The billionaire said that the market was on the verge of a major bull run which started when the Nifty hit a low of 7,500 in 2020.
Jhunjhunwala said, “I think India is beautifully placed to register double digit growth in the next four to five years. I anticipate that despite the second COVID surge we are going to have double digit real growth in this year.”
He elaborated, “India is on the verge of a very big bull run, which started from the day the market made the bottom in 2020 when Nifty was at 7,500 [points].”
He expects the most battered stocks in midcaps and small caps to give the biggest returns. Jhunjhunwala has invested heavily in the metals space.
“I think there is going to be a big upturn in the Indian economy. Look at the divergence between the valuation of cement stocks and metal stocks and look at the prospects of metal stocks, I think there is a great opportunity there. I am a large investor in metal stocks. The most battered stocks in the midcaps and the small caps are going to give the biggest returns.”
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