Rajat Jain, CIO, Principal Mutual Fund, is betting big on auto, chemicals, private sector banks, NBFCs, insurers and rural economy-linked plays.
Speaking on the impact of coronavirus on India Inc, Jain said earnings downgrades are likely as businesses are disrupted. “Provisions for banks may rise as the loan repayment ability of MSME businesses would potentially get impacted due to demand disruption.”
Edited excerpts:
Q: Should investors stagger their investments in equities right now or wait on the sidelines in light of the over 15 percent correction from record highs?
A: Valuations have turned attractive after the recent market corrections due to concerns over the spread of novel coronavirus, or COVID-19, and sharp decline in crude oil prices. Volatility continues to remain high, with sentiment negative. Investing through a staggered approach would help long-term investors to benefit from the market volatility and gain from rupee cost averaging.
Q: Do you think the worst is over for the market or there is still more room for correction given the current global situation?
A: Valuations have turned attractive on growing coronavirus concerns and falling oil prices. The convergence of equity and debt market yields is another indicator of how attractive equity markets are.
As far as the Indian economy is concerned, we had good monsoon last year which paved the way for a decent rabi season in 2020. This is expected to boost rural consumption demand. Another factor that can potentially benefit India in the medium term is the shift of manufacturing business out of China. India could possibly be one of the best alternatives as and when this shift commences.
Q: Many sectors have turned attractive after the recent correction. Have you changed your sectoral weightage?
A: Current valuations across sectors are attractive for long-term investments. Investors can look at auto on the back of a low base effect. Indian chemical players can gain because manufacturing in China has been impacted.
In the financial space, private sector banks could benefit as many high-quality stocks are available at attractive valuations compared to their peak prices. Similarly, select NBFCs and insurance businesses are attractive too. India being a consumption driven economy, this sector is well poised to gain from a market rebound when the COVID-19 issue settles. Additionally, any sector directly related to the rural economy like farm inputs, building materials etc may benefit in the near to medium term as rabi harvest is expected to be better this year.
Q: Do you expect any surprise stimulus package or rate cut from the Reserve Bank of India?
A: Yes, but rate cuts are unlikely to help in a situation like this, where supply-side disruption is the main issue. Going forward, some supportive regulatory measures from the central bank would be needed as the financials of mid-sized companies are likely to impacted due to sudden collapse in demand.
Q: Do you expect further earnings downgrades in the upcoming quarters post the coronavirus-led supply chain disruptions?
A: Earnings downgrades are likely as businesses are disrupted. Further, provisions for banks may rise as the loan repayment ability of MSME businesses would potentially get impacted due to demand disruption.
Q: Is it the time to move to safe havens like gold or better to stay in equities given the virus fears?A: Volatility is inherent in equity markets, especially in the short term. Investors should continue to invest based on their financial goals and risk appetite.
Disclosure: The views / opinions/ beliefs/ expectations contained herein are the independent views of the investment manager and are not to be taken as an advice or recommendation to buy or sell any investment or interest thereto. The views and strategies described may not be suitable for all investors. The sectors referred above should not be construed as recommendation from Principal Asset Management and/or Principal Mutual Fund. The scheme may or may not have any present or future positions in these sectors. The views given above may change from time to time without any notice.
Disclaimer: The views and investment tips expressed by investment expert 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.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
