These are indeed unprecedented times, and it’s important to maintain asset allocation discipline. Valuations are attractive, we would recommend investors should capitalise on increasing allocation.
Overall, we would recommend investors look at equities and allocate capital which is not required for the next 3 years, Neelesh Surana, CIO, Mirae Asset Investment Managers India Pvt. Ltd, said in an interview with Moneycontrol’s Kshitij Anand.Excerpts:
Q) The Sensex broke below 30,000 levels to hit a fresh 3-year low this week. An enormous amount of wealth has been already eroded. What is causing panic in the market, and what would you advise investors, who are left with bleeding portfolios even if they have invested in mutual funds?
A) These are indeed unprecedented times, and it’s important to maintain the asset allocation discipline. Given that valuations are attractive, we would recommend investors should capitalise on the same by increasing allocation.
However, the discipline of asset allocation should be maintained given that coronavirus is an evolving situation.
While a large part of the risk is built-in current valuation, a timely resolution of the crisis is important to prevent second-order impact on demand and supply chain.
Overall, we would recommend investors look at equities and allocate capital, which is not required for the next 3 years.
Existing investors should not look at point-to-point returns – most of the losses are quotation and will be recouped over time.Q) Gold and Oil and equities all moving in one direct – what does it tell us or how should investors decode this?
A) The reaction of oil is not linked to equities. It’s linked to the OPEC decision to increase production and it has reset the oil prices lower, and that is positive for India. With our current average Brent price forecast of USD 30/bbl, gain to India is in excess of INR 2.5 trillion (~ 1% of GDP). The gain from low oil prices can be shared between central, state govt and the consumers.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) For large allocations, we would recommend investing about 50 percent lump sum, and remaining can be spread over the next few weeks. For others, SIPs are the most efficient way of capturing the volatility/downside.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) FPIs have sold equities worth $4.5bn and bond outflows exceed $4bn. The systematic outflow from equities as an asset class via the ETF route is negative for all EMs including India flows.
An important related point is that India has currently huge USD 487bn FX reserves, which will help mitigate the impact on currency owing to FII flows.Q) With recession fears looming, I think investors could say goodbye to an earnings recovery for at least two quarters —what is the kind of earnings cut you are factoring in amid slowdown?
A) It’s an evolving situation and thus it’s not possible to view the impact on earnings for the next two quarters. It is important to look at Covid-19 as a one-off event and thus P/BV would be a better measure for valuation, rather than P/E on immediate earnings.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 a far-reaching effect, as compared to previously-seen epidemics. Does that mean one stays away from equities?
A) An important point in the equity markets is that generally myopic nature of markets – stock price – reacts more than required to driven by short-term events (i.e. coronavirus); whereas the 'value' which is driven by long-term assumptions like DCF does not change that dramatically.
It will be a fair assumption that the disruption from Covid-19 will be short term, and this issue will be not there, say, one year down the line.Q) What is your investment approach now? Which are some fundamentally strong sectors or stocks that you think are worth buying post massive selloff in the market?
A) We continue to follow a two-pronged approach – a sort of barbell strategy – with significant portion into high-quality names which have now corrected, and at the same time participating in 'deep in value' businesses. Weightage in select public sector companies have been increased.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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