As vaccinations accelerate, correction is an opportunity to add cyclicals, Motilal Oswal has said in a report.
"Resurgence in second wave of Covid-19 has led to elevated market volatility and correction. Nifty and Bank Nifty are down 5% and 15%, from the recent highs, resp.
To contain the pandemic, several states have announced localized restrictions with Maharashtra yesterday unveiling set of broad-based measures for two weeks minilockdown. We expect the set of restrictive measures to impact near-term economic recovery till cases stabilize. However, key government authorities and policymakers have ruled out national lockdown.
Meanwhile, vaccinations are gradually beginning to accelerate. As vaccination pick up further with approvals for more vaccines now in place, we expect the focus to shift back to growth, cyclical recovery and fundamentals.
Thus, we recommend the correction as a buying opportunity and advocate adding a balanced mix of growth, cyclicals and defensive names. We continue to be OW on the BFSI, IT, Metals, Cement & Capital Goods, Neutral on Consumer, Auto & Pharma while staying UW on Energy, Utility and Infrastructure," the broking firm has said.
According to the brokerage, India is going through a resurgent second wave of Covid-19 pandemic as the daily new confirmed cases has shot up from 10K-11K in first half of February to ~2 lakhs in April'21. Active cases have already crossed the previous peak of ~1mn and are now inching towards ~1.5mn. Consequently, many states have imposed localized lockdowns and restrictions while Maharashtra has announced a 14 day lockdown with conditions to break the chain of transmission.
"Case positivity rate in India is now above 11%, much higher than 1-2% at the beginning of March. The pace of spread in 2nd wave is much more intense and daily new Covid-19 cases are already 2x of the peak seen during the first wave. The cases have now spread beyond Maharashtra into other states like Chhattisgarh, Uttar Pradesh, Karnataka, Delhi etc. Maharashtra still accounts for 42% of active Covid-19 cases while Karnataka, UP, Chhattisgarh account for 6- 8% of total active cases each," Motilal Oswal has said in a report.