Playing unlock theme: 7 stocks worth picking up

An apparently subsiding second wave is offering hope to covid-weary stock market investors. State governments slowly lifting local lockdowns is spurring the optimism. “Since everyone was waiting for the opening up, there will be clear revival in areas like FMCG, retail, etc,” predicts Keval Bhanushali, CEO, Marwadi Shares & Finance. After being decimated by the first national lockdown, several of these companies bounced back and generated fabulous returns when the economy opened up last time. Can investors play the unlock theme again? Experts say investors can, but they need to do so with caution.Be selectiveUnlock trade was a blind game last year because all stocks from affected sectors were going at throwaway prices. The situation is different this time. Some of the stocks have already started going up and are well above their pre-covid levels. This is because the lockdowns were more localised this time, and the corrections were not that big. For this analysis, we have avoided all stocks where share prices are higher than precovid levels (as on 31 December 2019). For example, some fundamentally strong companies from affected sectors like Dmart, which is up by 74% compared to pre-covid levels, were not taken into account.Second, investors should concentrate on sectors where the outlook is certain. For example, there is no substitute for hotels, air travel, etc. The consumer discretionary segment is also expected to look up once things settle. However, avoid sectors where the damage may have been permanent. “Since some may continue with their new movie watching habits on OTTs, there may be structural damage to the multiplex business,” says Jaspreet Singh Arora, CIO, Equentis Wealth Advisory Services.Third, investors should also consider the massive consolidation happening in Unlock trade played out well after the first wave. However, it may not generate the same results this time. Play unlock theme with caution impacted sectors. “Businesses in the touch and feel economy are in big crisis now and that is resulting in massive consolidation in spaces like hotels, retail, restaurants, etc. So, the benefit will be more for the companies that survive this turmoil,” says Pankaj Murarka, Fund Manager, Renaissance Investment Managers. That means investors should focus only on companies that were expected come out successfully and ITC is a good example. “Despite other segments doing well, ITC is suffering because of its investment in hotels and this is a good time to pick for long term holding,” says S. Ranganathan, Head of Research, LKP Securities.Investors should concentrate on sectors where the outlook is certain and avoid businesses where the damage is permanent.8345823483458236There is no substitute for infrastructure and housing as well. “Sectors like infrastructure, housing etc will start doing well once the government focus shifts from vaccination to infrastructure,” says Arora. Since that phase is expected only later—in 2022—investors in this space should be prepared to hold for a longer period. From this space, Prestige Estates is placed favourably with good potential upside.Some sectors did not get impacted directly, but are still suffering because their customers were impacted by lockdowns. For example, banks were allowed to operate during lockdowns, but several borrowers were not and this may result in an increase in default. While large banks are expected to fight back, some small banks and NBFCs are also doing well and boast favourable risk-reward ratio. City Union Bank, Federal Bank and Manappuram Finance are examples. Sectors like oil and gas, power generation, etc also got impacted because lockdowns reduced consumption. It is worth betting on companies like NTPC, Petronet LNG, etc because they are fundamentally strong and will bounce back once the economy is back to normal.Think medium termInvestors need to be extra cautious this time and should take a medium to long term view. Though the second wave is subsiding, the fear of a third wave may keep unlock in moderation and it may not be anything like what happened after the first wave. While new cases are coming down in India, it has started surging once again in countries like UK, Vietnam and Malaysia. Since we still need to maintain social distance, hotels and cinemas may open only slowly. However, the government has taken up an ambitious task of vaccinating the majority of the population by December 2021. “Unlock theme is worth playing with medium term perspective now because the negative impact of third wave will be lower as the percentage of vaccinated people will be higher,” says Murarka.Keep exposure smallThe bounce back this time will be muted because the virus variant in the second wave has been deadlier than anything seen earlier and with covid reaching villages, the impact will be far deeper. Not just old people or people with co-morbidities, healthy young people have also succumbed this time. “The animal spirit came back fast last time, but may take longer this time because the psychological scar is deeper. So, even if you want to do unlock trade, keep only a small portion of the portfolio for it,” says Satish Ramanathan, MD & CIO – Equity, JM Financial AMC.(Graphics by Sadhana Saxena/ET Prime)

from Economic Times https://bit.ly/3gzv7Q6
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