The economy-correlated sectors which include autos, banks, NBFCs and capital goods players can be on the radar in the second half as the economy normalises, as the sector outlook related to demand and fixed cost absorption being better placed leading to earnings recovery estimations might work in their favour, Mayuresh Joshi, Head - Equity Research, William O'Neil India, said in an interview with Moneycontrol’s Kshitij Anand.
edited excerpts:
Q) We are heading towards a historical event i.e. Independence Day. Amid the pandemic, how important is financial independence for investors, and how best they can attain it?
A) Financial independence is absolutely necessary to ensure that all our needs that are existing right now are getting serviced through a regular flow of income currently, and continue in our retirement days as well.
So, to have necessary savings done in diversified modes shall ensure the regular flow of income in the latter stages of life to take care of all holistic needs and wants.
The best way to go about the same is to carry on investing systematically with the right proportion of money in diversified instruments in order to have a regular flow of income through capital appreciation over a longer period of time.
The 'right proportion of money' is the absolute amount of investments being done right now in lieu of generating regular cash flows in the future to carry on a similar lifestyle as well as account for inflation-adjusted returns and other mandatory outgoes like medical and insurance payments.
Q) Your view on the RBI Monetary Policy announcement of August 7.
A) More or less on expected lines in terms of holding up of rates. The other announcements in terms of liquidity support, expectations of transmission of rates trickling in the system, and data points which are expected to gradually improve, leave a window open for some easing in the next meet.
The overall policy remains constructive and accommodative as far as the changes in the macroeconomic cycle and its associated dynamics are concerned.
Q) Some new NFOs have been launched recently to tap US markets. Do you think that investing abroad is a must in one’s portfolio? What are the factors one should watch for before investing in overseas funds?
A) It is a way to diversify the return expectations by diversifying one's risk across multiple geographies. In the current context, some areas of global equities can be outperformers assuming the business dynamics they are in and the moats they operate out of.
One should however be aware that significant global macro changes or any disruptive macro changes for any particular economy can have an impact but that element of risk is what equity markets are fraught with.
In today's context equities globally are more complexly intertwined and the entire decoupling argument is still debated. So, exposure partially can be undertaken based on one's risk/reward appetite.
Q) Gold surpassed $2000/ounce just last week. Equity markets are also up by about 50 percent from the March lows, but will still beat Equity Asset Class hands down in 2020. Do you think investors should tweak their portfolio allocation strategy?
A) Solid move by the precious metal; the two factors leading the price move were the fall in the dollar index along with the fall in the real yields globally.
As the asset allocation and diversification strategy mandate some proportion of one's portfolio being in precious metals, a systematic investment can continue in the yellow metal.
Q) Someone who is already invested or long in the market since March, what would you advise – book profits or hold for more potential gains?
A) One needs to see in which sectors the exposure is to and what broad expectations are being laid out for the sectors as a whole. Sectors that have outperformed and where earnings have relatively held up have continued doing well.
Clearly, one needs to have two broad perspectives; one, the sectors which are performing significantly better until the vaccine is found and the sectors which shall be in focus on the announcements of the vaccine.
So the tale of two halves suggests defensive sectors are outperforming right now both on earnings delivery and management outlook but one needs to keep an eye on the economy-related, beta-correlated sectors for the second half which is beaten down and can start reacting hopefully, as some development on the vaccine front might come through in the next 1-2 quarters.
Q) Which are you re-rating themes in markets and why? Or sectors which could get rerated as the economy normalises?
A) The economy-correlated sectors which include autos, banks, NBFCs and capital goods players can be on the radar in the second half as the economy normalises, as the sector outlook related to demand and fixed cost absorption being better placed leading to earnings recovery estimations might work in their favour.
These sectors can be kept on the watch list and numbers getting reported in the second quarter to be closely monitored as a testimony for the thesis to start playing out in the second half.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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