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'As second wave soars, avoid speculating in cyclical firms with sub-standard corporate governance, poor earnings potential'

'To remain invested in equities' has been the mantra given our steadfast stance of 'Time in the market' rather than 'Timing the market'.

April 10, 2021 / 06:55 PM IST

In a throwback to this eventful year, we take you through some notable data points and talk about the direction in which the data leads us. While data is available to us all to decipher, what becomes more important, is to interpret it and take decisions based on that.

Record high Manufacturing PMI across major geographies, low jobless claims in the USA, and maintenance of an accommodative stance by major central banks, point towards continued economic recovery (The HITS). The things to watch out for remain to be, rising interest rates (due to inflationary concerns) and the next waves of COVID-19. In addition to these, supply chain disruptions are worth noticing too (recent Suez Canal blockage or tight supply of containers in the last few months), as they can have a temporary inflationary impact (The MISSES).

Closer to home in India, the positives of lower unemployment rates, GST collections of over Rs 1 lakh crore for six consecutive months, highest PMI in a decade, and finally two in-house manufactured vaccine programs with a likely third in the works (The HITS), will hopefully outweigh and combat the negatives of the second COVID-19 wave or higher inflation. Credit growth, which is yet to pick up will be another data point to watch out for (The MISSES).

After COVID-19 struck early last year, we took a different view than from the consensus and strongly believed that the recovery path would not be the same for all. A divergence between companies with winning traits and losing traits amidst the grave hardship in the economic and business environment would become fairly evident going ahead and to that effect, we called out a 'K' shaped recovery as the most likely outcome. The structural reforms to move our economy from unorganized to organized (demonetization, GST, RERA, AQR, etc.) combined with the hardships of COVID-19 and liquidity crisis (led by frauds, massive write-offs by large NBFCs & Banks) is fueling the organized sector's growth. While the overall GDP for FY22 should remain the same as FY20, the share of the pie by organized players in GDP is bound to increase, and this is what's exciting stock market participants, the last few months.

'To remain invested in equities has been the mantra given our steadfast stance of 'Time in the market' rather than 'Timing the market'. The initial impact of COVID on our lives and the duration of that impact was more than what anyone had anticipated, but the importance of investing when others are fearful was once again proven right at the end of the year.

Close

All our past and present learnings tell us that now is the time to invest indeed, but invest responsibly. As the second wave soars in India and uncertainty hits us again, one should avoid speculating in cyclical sectors or companies with a sub-standard corporate governance track record, poor earnings potential, or high leverage. In times such as now, the prudent thing to do would be to increase exposure to high-quality stocks with strong balance sheets, sustainable competitive advantages, and healthy earnings growth. This will help one to continue participating in the upside growth potential of equity investments without risking the principal.

Disclaimer: The views and investment tips expressed by the investment experts on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Aishvarya Dadheech
first published: Apr 10, 2021 12:15 pm

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