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Last Updated : Jul 25, 2020 08:03 AM IST | Source: Moneycontrol.com

DAILY VOICE: Bet on financials and consumer discretionary stocks for value creation: Atul Bhole of DSP Investment Managers

Heightened retail investor participation has become a global phenomenon across markets recently. It seems like people are channelising forced savings into the equity markets and trying their luck.


While many sectors have come back to pre-COVID levels, financials and consumer discretionary stocks are still trading at depressed levels and present a good opportunity to investors provided stock selection is right, Atul Bhole, Senior Vice President – Investments, DSP Investment Managers, said in an interview with Moneycontrol’s Kshitij Anand.

Edited excerpt:

Q) What will be the biggest risk for investors in the second half of 2020?

A) The market had priced in a faster recovery in economic activities for the second half of 2020 and the lifting of lockdowns. Unprecedented fiscal stimulus packages globally and monetary easing has also helped rapid market recovery.

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Risks on the downside going forward would be the worsening of the COVID curve which can derail the recovery process and less than expected uplift in consumption post the initial pent-up demand.

Financial sector health is the third risk as once the moratorium on loan repayment gets over, there is a probability that higher NPAs can come to the fore.

In investing, one also needs to be aware of the upside risks especially for investors who are fence-sitters and running higher cash levels.

A huge amount of liquidity coupled with the possible discovery of COVID vaccine, market supporting regulatory & government interventions, and chances of economic recovery building up further can keep on propelling the markets higher.

While many asset prices are going up and some investors are skeptical about it, the other way of looking at it simply is that money is losing its value given extraordinary monetary experiments and is a bigger risk for holders of cash.

Hence maintaining optimal asset allocation is of utmost importance even when the economic environment is looking very challenging.

Q) What is your call on the IT sector? This has been one of the better-performing sectors amid the lockdown. Where do you see value?

A) After the recent run-up in stock prices, except 2-3 large-cap companies, there is no more value in the IT sector.

IT companies with their Q1FY21 performance have proved their defensive business model with very limited topline de-growth and margin resilience.

Defensiveness and under-ownership have driven their stock performance in such volatile and challenging times. The IT sector as a whole is no more a high growth sector on the scale the sector and the companies have achieved over the years, but scores very well in terms of free cash generation.

Large-sized companies are better positioned due to their rapid strides in newer technology areas like cloud, digital, etc. The diversified client base also reduces the risk of client concentration compared to midsized companies.

Clients going in for vendor consolidation to deal with lesser number of players with travel, visa restrictions, delivery capabilities, etc., can also help large companies

Q) One evident trend was the new race of investors who joined D-Street despite sharp volatility. Do you think this new breed of investors/traders have come off age and are more matured in making investment decisions? Do you see any specific trend?

A) Heightened retail investor participation has become a global phenomenon across markets recently. It seems like people are channelising forced savings into the equity markets and trying their luck.

Though with the internet, information is available almost instantly to everybody, investing needs a proper framework of economic assessment and stock selection.

Such a process may not be followed by many amateur retail investors. Looking at the volatility in smallcap or B category stocks, one can assume that lot of retail money is going there.

Such participation also coincided with the rise in equity markets which may have boosted peoples' confidence. We can't derive any trend from such activities till these investors experience one or two full market cycles.

Q) What is your call on Agricultural space? It is one sector which has remained unfazed from the COVID? What are the top stocks which one can look at?

A) The agricultural sector is doing extremely well with early monsoons and rural areas being affected much lesser by Covid-19.

The related stocks have responded to the growth and have done very well. While companies should continue to do well, stocks may take a breather after factoring in the positivity.

Q) Growth is likely to take a hit this is given, but how can equity investors turn the falling GDP scenario into a benefit? Which sectors are likely to see a rebound once the tide reverses?

A) While many sectors have come back to pre-COVID levels, financials and consumer discretionary stocks are still trading at depressed levels and present a good opportunity to investors, to our mind, provided stock selection is right.

We believe at least for select private financials, NPAs may not rise to the extent feared by the market. This is based on the premise and belief of strong credit appraisal standards at those lenders, cross-selling based on data analytics, large salaried borrower base, and deterrent of maintaining CIBIL scores. These financials and consumer discretionary companies are a strong franchise and will certainly gain market share during the normalisation process.

Q) What is your outlook on the auto and financials -- the two themes which have seen the worst of COVID impact? Can they turn out to be the dark horse of 2020?

A) While we are confident about select financials bouncing back as mentioned above, recovery in the auto sector may not be linear. A lot will depend on the sustenance of demand post pent up buying and also how the supply chain functions.

Admittedly, the sector holds a lot of promise after going through 2-3 years of a cyclical downturn and is due for recovery, COVID'19 disruptions may lengthen the recovery process.

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.
First Published on Jul 24, 2020 03:14 pm
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