edited excerpts:
Q) What is be your advice to investors now - lump sum or staggered approach in direct equities or mutual funds?
A) It is a tough situation, not only for the Indian economy but for the markets across the globe. It’s different from earlier downturns as it is triggered by a pandemic and the exact impact or peak can’t be quantified yet.
However, this is also true that the market emerges much stronger and garners exceptional returns for those who utilise these corrections to accumulate quality companies with a long-term investment horizon.
Maybe a first-timer is still contemplating over his investment plan but a smart investor knows this well and will thus try to exploit this opportunity.
Now, coming to the choice of instrument or mode of investment, it is completely personal, depending on the risk profile of the individual.
In our opinion, it is an excellent time to build a long term portfolio as many fundamentally sound counters are available at a good bargain.
At the same time, you may let your mutual fund SIP running, to take advantage of averaging at lower levels. For those looking to build a fresh portfolio, we would suggest allocating 30-40 percent of their investable corpus at the current levels and wait for further correction or clarity over the market direction.
Pharma, FMCG and private bank stocks are preferred bets while SIP in largecap funds and sectoral funds (beaten-down sectors such as Auto, Banks, and Oil & Gas) are advisable.
A) Undoubtedly, the current times are challenging and businesses across levels are feeling the heat. Profitability will get hit in these tough times and I am sure most businesses are searching for a way to stay afloat.
In line with the others, some of the brokerage firms, which were already in financial stress, are worst hit due to liquidity crunch after COVID -19 lockdown.
But, I do not see the situation being so grim. We see most of the leading players are on course the journey of transformation and the lockdown period is only helping to cover the distance fast. However, consolidation in the industry is inevitable as there isn’t enough space for too many players.
A) Given the current situation, few essential consumer products and healthcare products are in high demand as it helps consumers to sail through difficult times. Both FMCG and healthcare sectors are hotspots wherein consistent buying is seen amid coronavirus scare.
We believe these two defensive sectors are safe bets in such volatile markets. Although these sectors are also facing challenges due to lockdown wherein factories are either closed or working with less manpower and supply chains have been hit.
However, once things begin to recover, there is a likelihood that these sectors would witness a stronger demand for essential items. In the current situation, investors can accumulate stocks from these sectors in a staggered manner for the long term.
A) The ESG space companies take into account the non-financial performance indicators that include environmental, social and corporate governance factors.
These parameters are usually used by socially conscious investors to screen securities to invest. It may offer a potential long-term performance advantage when integrated into investment analysis and portfolio construction.
In India, the ESG based investing is not as big as compared to some of the developed countries. And, companies following the ESG matrix would also face the brunt of a slowdown and that would impact their earnings trajectory. However, their recovery could be comparatively stronger once we see the revival of the economy.
A) We do not expect a very promising start for FY21 as we are still grappling with the pandemic which has hit economic activity across the globe. We believe Q1 of FY21E will be majorly impacted by the nationwide lockdown, which will lead to earnings downgrade for most of the companies.
Also, FIIs may continue to be net sellers if the situation does not improve in the coming days. Adding to the worries, if the virus spread intensifies further or continues for longer than excepted, it could also induce redemption pressure and that in turn would trigger selling from the DIIs as well.
Nevertheless, Nifty P/E now hovers around its historical average, which provides a good investment opportunity and the past trend suggests that every major fall is followed by a strong rebound in the markets.
Hence, as and when the coronavirus cases start receding, we could see a gradual recovery in demand and pick up in the economy, which would lead to an increase in fund flows to the markets.
A) We may see investors taking the concept of valuation more seriously and plan their future investments accordingly. Also, they might have realised by now the importance of having defensive stocks in their portfolio as a hedge, to sail through the tough time.
Further, the unexpected rise in cases of coronavirus only reinstates the fact that insurance is a necessity and not a discretionary spend and therefore we could see an increase in insurance penetration in India.
Additionally, the consumption would pick up. However, it would be gradual especially for discretionary goods and services.
Q) We have seen massive wealth erosion in most of the top-quality stocks in FY20, and as we step into FY21 some of those names could give multibagger returns if someone is investing in them now. Could you highlight 3-5 such stocks that hold that potential?
A) The Indian markets have corrected sharply from their peaks and we have seen massive wealth erosion in most of the top-quality stocks as growth and earnings for FY21E are expected to get adversely impacted.
Also, with a change in the market dynamics, we could see a change in the sectoral allocation by the fund managers to stay relevant.
Amid all, we believe there are quite a few top names that are trading either close to or below their historical average P/E and provide a margin of safety at current levels.
We recommend accumulating stocks like ICICI Bank, Hindustan Unilever (HUL), Cipla, Reliance Industries and HDFC Life Insurance gradually for healthy long term gains.
Q) Any particular sector(s) which investors should go underweight on at least for the next year or in the current FY?
A) Among the sectors, PSU Banking, metal, realty and auto are affected more by the virus-led economic disruption and thus recovery in these sectors will be gradual.
We would advise investors to stay away from these sectors (at least for the next 2 quarters) or take selective bets until there are meaningful signs of revival.
On the flip side, we are overweight on FMCG, pharma and selective names in private banking as they are already witnessing buying interest or showing resilience at the higher levels and would rebound faster once the economy recovers.
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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