The sectors that we like are private sector banks, non-lending financials, technology and automobiles. Consumer staples is a space which we like but the valuations there are pretty stretched.
Fragile businesses with a high amount of leverage could face survival risk as this lockdown continues. Even if the companies have zero earnings for the next 3-6 months, 30 percent-plus correction in most of the stocks is overdone in my opinion," Raj Mehta, Fund Manager, PPFAS Mutual Fund said in an interview to Moneycontrol's Sunil Shankar Matkar.
Q: The market fell drastically in the past one month due to COVID-19 spread? What are your thoughts and what is the way ahead for the market?
A: The outbreak of COVID-19 has spread a lot of panic among people about their health and the health of their loved ones. I am more concerned about the humanitarian aspect here rather than the financial impact. Daily wage earners, freelancers, contract labour, etc. are the most impacted and heart goes out to such people.
In terms of finding a treatment for COVID-19, we are better placed than where we were 3 months back. Social distancing and lockdowns have helped to flatten the curve globally. Fragile businesses with a high amount of leverage could face survival risk as this lockdown continues.
Even if the companies have zero earnings for the next 3-6 months, 30 percent-plus correction in most of the stocks is overdone in my opinion.
Q: Do you think FM's Rs 1.7 lakh crore stimulus, and RBI's liquidity measures are enough?
A: Definitely. The moves by the RBI have been really good and well rounded. You could see the bond market's reply to the RBI move on Friday, 27th March. Not only have they reduced the repo rates by 75 bps but they also reduced the reverse repo rate and cash reserve ratio. This will in turn force the banks to lend whenever the situation improves rather than keeping funds with RBI. We have already seen SBI reducing lending rates and other banks will follow.
The announcements by FM were more welfare measures for the poor section of the society and we could see some more announcements in the coming days.
Q: At the time of market bleeding, what are your suggestions to your clients?
A: In my opinion, the correction in the markets is a bit overdone and the markets will recover before the actual economic recovery happens. Our advice to the clients has been to stick to their financial plans and don't get perturbed by these volatile market moves. Investors who are investing via SIP's should stick to the staggered investing.
This perhaps is the worst time to stop your SIP's. Our advice to the clients has been to keep investing in a staggered manner over the next few weeks. No one knows where the bottom is and when will the bottom be formed. It all looks good in hindsight.
Q: All stocks/sectors turn more attractive in terms of valuations now. Have you started accumulating?
A: Going into this market fall, we were sitting on about 10 percent cash in our flagship scheme Parag Parikh Long Term Equity Fund and about 20 percent cash in Parag Parikh Tax Saver Fund. We have started deploying this cash in the market mayhem.
The sectors that we like are private sector banks, non-lending financials, technology, and automobiles. Consumer staples is a space that we like but the valuations there are pretty stretched.
Q: FIIs net sold over Rs 1 lakh crore in equity and debt in March so far, which seems to be the highest monthly outflow. Also are you worried due to the hefty outflow?
A: From what I hear and read, the ETF selling by FIIs seem to be over for now. But in case the COVID-19 situation doesn't subside globally and there is a risk-off, then we may see some more outflows from the emerging markets. In case India is able to come out stronger after this lockdown, it may be a good investment destination to look at.
Q: Earlier the economic and earnings recovery was expected to start in the second half of FY21. But now most experts started talking about FY22 for recovery. What are your thoughts?
A: In case of a worst-case scenario, we may see earnings getting wiped out for the next 6 months and on a conservative note, that is what we keep in our mind while investing in companies. Whether the earnings will revive in the 2nd half or not, is difficult to predict right now since we don’t know the exact outcome of this outbreak in our country.
The company managements feel that even if this lockdown gets over by mid-April, it will be really difficult to get the migrant labour back to work and it may take a while for the full supply to go onstream. All the supply chains will be broken and hence it may take some time to get it back live.
Q: Do you feel the government has a major relief in fiscal deficit due to more than a 60 percent fall in oil prices globally?
A: India imported $100 billion-plus of oil in FY19. So with over 60 percent drop in oil prices, definitely the government has some leeway in the fiscal deficit. At the same time, the divestment targets which they had would be really difficult to meet after this confidence hit. We have already seen the government increasing the excise duty on petrol and diesel and not passing on the full benefits of crude oil price drop to the consumers.
So this would act as a buffer to fight this virus. Given the situation currently, I think the government needs to focus more on reviving the economy rather than focusing too much on the fiscal deficit.
Disclosure: Views are personal.
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