With a lockdown in place, a certain amount of economic de-growth will happen. For instance, if India shuts down for 30 days we would lose nearly 5 percent YoY nominal GDP or about 5 lakh crore, Sahil Kapoor, Chief Market Strategist, Research, Edelweiss Wealth Management, said in an interview with Moneycontrol’s Kshitij Anand.
edited excerpts:
Q) India is going through a 21-day lockdown. What is the way forward for markets?
A) The economic lockdown due to coronavirus is causing investors to factor in the business losses which will keep mounting until such times that this is in place.
Currently, the world is working on a consensus that with a lockdown between 3 to 6 weeks and quarantine measures the spread can be curbed. The 'flattening of the curve' is the strategy now.
This also assumed that with a lockdown a certain amount of economic de-growth will happen. For instance, if India shuts down for 30 days we would lose nearly 5 percent of YoY nominal GDP or about 5 lakh crore.
The governments around the world are trying to bridge this expected gap by giving equivalent fiscal stimulus in sync with monetary policy support. This consensus is likely to get challenged or strengthened in the next two weeks when Europe enters its week 3 and 4 of lockdown.
If it works as it worked for China, South Korea and Japan the markets will probably take that as a solution for now.
But, if it doesn't then a more serious and prolonged slowdown globally and locally will take hold. This is what is battering investor confidence.
Q) What would you advise investors who are left with bleeding portfolios even if they have invested in mutual funds?
A) Markets never become cheap without a crisis. This is an unprecedented crisis but every crisis in real-time seems unsurmountable.
With government action and the indomitable human spirit, this will also pass. This means the currently attractive valuations mean investors should keep their SIPs in place.
Those with a fresh investible surplus should keep adding small staggered amounts to their portfolios. We are advising investors to add between 5% to 10% every week, starting now.
Q) Gold and Oil and equities all moving in one direct – what does it tell us or how should investors decode this?
A) This is a typical bear market where all asset classes move together and only cash is king. Most of the inter-market relations break when markets begin to price in recessions.
In developed economies, a recession is now a given and this explains why uncorrelated or loosely correlated assets are also moving together. This isn’t likely to persist beyond a few weeks.
Q) Many investors want to take advantage of the fall in the markets but have no fire powder – what would be your advice. Start a small SIP?
A) New investors should start with a sizeable SIP if their equity allocations are very small. This is an ideal time for them to take equity exposure and continue into the future.
Q) FIIs have been pulling out money from markets across the globe and India is no exception – what is troubling FIIs – is it the margin pressure redemption, ETF selling or just that smart money moving towards safe havens?
A) It’s a combination of margin pressure, work from home restrictions where funds want to unwind their trading positions, risk aversion, and pricing in of slowdown across the board.
There are no safe havens in such an environment apart from bonds and the US Dollar which seems to have played out.
Q) With recession fears looming I think investors could say goodbye to an earnings recovery for at least 2 quarters —what is the kind of earnings cut you are factoring in amid slowdown?
A) It does appear that at least two quarters of earnings growth will get cut. This means in the next financial year earnings growth may remain in mid-single digits at best.
Q) Some analysts suggest that COVID-19 is nothing like that what financial markets have faced in the past – so the outcome for financial markets would not be similar. It has far-reaching effects that previously seen epidemics. Does that mean to stay away from equities?
A) For equity markets, it’s all about earnings and valuations. The most logical way to look at this is that it will start to ebb and markets would price it in. It will cause some sectors to gain and some to lose in the longer term.
New opportunities and market leaders emerge from each crisis and this will be no different. Crisis brings opportunities, stay with equities.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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