Stock market strategy for Covid times: Buy or sell?

Analysts suggest investors remain in a wait-and-watch mode and not jump in to buy stocks across-the-board.

The new Covid variant found in South Africa derailed most global markets, including India, which saw the S&P BSE Sensex tank over 1,400 points in intraday deals. Though the markets recovered partially, analysts suggest investors remain in a wait-and-watch mode and not jump in to buy stocks across-the-board.

“With the depth of winter fast approaching in the northern hemisphere, this renewed Covid outbreak is clearly the biggest risk to GREED & fear’s recommended cyclical trade,” wrote Christopher Wood, global head of equity strategy at Jefferies in his weekly note to investors, GREED & fear.

The B1.1.529 Covid variant first found in Botswana suddenly surging across Southern Africa has mutations that could potentially mean higher transmissibility and the ability to evade vaccine defences, reports suggest. Investors fear the development can force countries to impose lockdown again and derail the already fragile economic recovery.

As a result, most Asian markets slipped with Japan’s Nikkei down 2 per cent and Straits Times slipping nearly one per cent. Shanghai Composite, Kospi and Taiwan were down 0.2-0.4 per cent, each.

“We would watch out for the trend in December, as the US, Germany, France, UK and Russia have seen a sharp spike in Covid cases. The period till December-end holds significant risk as festival season and free movement of people can bring the third Covid wave in India,” cautioned. Although we remain structurally positive on the Indian markets and economy, we don’t rule out near-term hiccups,” wrote Amnish Aggarwal of Prabhudas Lilladher in a recent note.

From a 52-week high of 62,245 levels hit on October 19, 2021, the S&P BSE Sensex has already slipped nearly 8 per cent now. If technical chartists are to be believed, the index can slip more from the current levels given the developments.

“Our research suggests that 57,200 may act as support for the Sensex. If it is unable to sustain this level, we can expect it to trade below 56,800-56,300 in the next few sessions,” said Likhita Chepa, Senior Research Analyst, CapitalVia Global Research.

G Chokkalingam, founder and chief investment officer at Equinomics Research, on the other hand, believes that the markets overreacted to the development on Friday. Those with risk-taking capacity, he believes, can look at buying defensive plays at lower levels.

“Though one cannot be sure about the severity of the new variant, the markets seem to have taken excessive precaution. Let’s wait-and-watch and see how the situation plays out over the next few days. That said, if someone has the risk-taking capacity, allocation can be made to defensive plays such as pharma and fast moving consumer goods (FMCG) stocks at lower levels,” he advised.

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