Going by the past episodes of bad news and corrections in global capital markets history, it's almost evident without a miss that bad news is an investor's best friend, said Jagannadham Thunuguntla, Senior VP and Head of Research (Wealth) at Centrum Broking in an interview with Moneycontrol's Sunil Shankar Matkar.
He further advised the investors to stay focused on quality and simple themes which will do well irrespective of short-term volatility. Edited excerpts:
Q. How do you read the result of the five state elections in the context of the general elections 2019?
A. Indian market has been flooded with a flurry of news in the past three months ranging from liquidity tightness, NBFC stress, real estate strain, resignation of RBI governor and outcome of state assembly elections.
There has been an oversupply of bad news, and a clear shortage of good news. Amid this, frontline indices have seen sharp cuts with Nifty tanking by around 12 percent. The cuts in specific stocks are deeper.
As state election results are out, one major uncertainty has ended for the market. A historical analysis of last 25 years of election outcomes shows generally elections have only short-term impact on the markets and in the long run, generally, markets keep creating wealth irrespective of political outcomes.
So the investor community should focus on buying good quality stocks, using the current market fall as an entry opportunity instead of spending too much energy on political developments.
Political analysts will try to draw inferences about state assembly elections’ impact on 2019 Lok Sabha elections. So most important thing markets will look forward in any election outcome is political stability, so that policy making will be seamless and robust. Any election outcome that can provide such political stability, markets will welcome.
Q. After the roller-coaster ride in 2018, how do you see market faring in 2019?
A. The only permanent truth in finance is that people will get bullish at the top and bearish at the bottom. It's absolutely understandable most of the investors at this moment feel bearish.
However, going by the past episodes of bad news and corrections in global capital markets history, it's almost evident without a miss that bad news is an investor's best friend.
When all others are selling, people who have bought now can surely expect spectacular returns in 2-3 years. Stay focused on quality and simple themes which will do well irrespective of short-term volatility. Make volatility your friend.
Q. How do you look at broader space in 2019 after a sharp underperformance in 2018?
A. Opportunities are umpteen across the broad market and mid-and-smallcap space after a severe market correction. But, the stock selection is critical.
Investors should focus on companies with low-debt (or more preferably, zero-debt), high profit margins and top-quartile return ratios. Further, they should focus on businesses which are simple to understand.
Q. As macro risks turn favourable, would you be a buyer, or prefer to stay away on growth concerns?
A. After a huge news flow during the past three months, event calendar is appearing light in the next 1-2 months. This should provide breathing space for the markets, as markets are in a state of mind where no news is good news.
Markets are ignoring positive developments such as crude oil price coming down from $86 per barrel to $60 per barrel. This is a major positive news for the Indian economy because India imports almost 80 percent of its crude oil requirement. This will help Indian companies' raw material expenses going down, helping their profit margins to go up.
Another positive development that is happening in the market is the 10-year bond yields are cooling off both in the US and India. For instance, in the US, bond yields have come down from 3.2 percent to 2.8 percent.
Similarly, in India, the 10-year bond yields have come down from 8.2 percent to 7.6 percent. The bond yield cool off should help Indian banks in gaining treasury income.
So, as of now, even though the market is ignoring positive developments, we believe these macro positives will help Indian markets in the long run so investors should focus on buying quality stocks in a staggered manner.
Q. Do you see a value buying in banks and NBFCs considering NPA and liquidity-related challenges?
A. As far as banks and NBFCs are concerned, investors can focus on those banks and NBFCs who have no exposure to IL&FS because those banks can outperform the overall market.
So focus on quality of the banks especially in terms of exposure to IL&FS. It's safer to stick to larger banks and NBFCs, as they will have bandwidth to navigate the current liquidity crunch and other related challenges.
Q. How do you look at domestic consumption story considering the slowdown over last few months? Do you find any value buying opportunities in the space?
A. We believe Indian domestic consumption story to remain strong even though there may be short-term hiccups.
We would like to focus on high-quality large companies such as Nestle which have household and strong brands.
Q. What are your top four bets for 2019?
A. Some of the bets we would like to focus on are HDFC Standard Life
, RBL Bank
, etc. with a long-term point of view. Investors can focus on buying in a staggered manner wherein they can buy in 3-4 tranches.