Dr. Vikas V Gupta, CEO & Chief Investment Strategist, OmniScience Capital, believes that given the lockdowns, it is likely that earning downgrades could happen in sectors that deal with perishable goods and services.
Gupta has over 15 years of experience in Indian financial markets. A B.Tech from IIT Bombay and a Masters and Doctorate from an Ivy League University—Columbia University, New York, Vikas incubated the global listed equity vertical of a multi-asset class investment management firm, obtaining, perhaps, the first US SEC license for an Indian firm.
In an interview with Moneycontrol's Kshitij Anand, Gupta said that investors should look for companies benefiting from life from home theme that includes WFH, PFH, among others.
Edited excerpts:-
Q The mayhem caused by the second wave has already fuelled worries of a complete lockdown to stop the surge seen in the daily COVID cases – something which was not factored in by the markets. Do you think we could retest 12,000 on Nifty in case lockdown becomes more stringent?
A) There is already a near-complete lockdown in effect. The only thing is that it is not imposed centrally. The impact of a lockdown for few weeks is already accounted for by the market.
However, the expectation is that all of this will peak in a few weeks and quickly start declining after that. If reality deviates significantly from this, there could be a downside. But, it looks unlikely at the moment.
Q) S&P has already slashed India's GDP growth forecast to 9.8% for this fiscal. Do you think a downgrade could also be in the offing? What impact will it have on markets as the market was factoring in a V-shaped recovery?
A) A downgrade is quite unlikely since RBI is visibly leading from the front. Further, the government has also clearly shown its intent to support the economy in the past year. Additionally, the stimulus cannot be ruled out of required.
The expectation is that rating agencies today is more about the right stimulus rather than maintaining fiscal deficits within certain limits which are applicable in normal economic circumstances.
Even if there is a downgrade, the equity markets are likely to shrug it off. Sent markets is a different issue.
Q Indian market has been an underperformer for the past few months – FIIs turned net sellers in April after 6 months. Is it rise in COVID cases or is there something else that have spooked foreign investors?
A) The FII selling was due to India-related factors. Rather, the yields of US 10-Year Treasuries also spiked at the same time due to inflation worries in the US and expectations that the Fed might raise interest rates sooner than 2023.
Q What are your views on earnings growth? After steady April – we could see a muted June on a QoQ basis at least if not on a YoY basis. Do you see further downgrades to the earnings trajectory in FY22?
A) Given the lockdowns, it is likely that earnings downgrades could happen in certain affected sectors. One should be prepared for that. Sectors with perishable goods and services will suffer.
However, for sectors where pent-up demand is possible, the earnings downgrades for this year could lead to an upgrade for the next year.
Q) What is your view on the Cryptoindex? Do you this could turn out to be the next asset class for investors who are looking to diversify beyond India?
A) Crypto-currencies are just mediums for exchange or storage, assuming there is widespread acceptance of some of them.
Otherwise, they are highly speculative "tulips", i.e. instruments designed for gambling and speculation.
An asset is something that can generate a positive cash flow for the investor, at least, sometime in the future irrespective of someone else buying it from the investor.
Crypto-currencies do not have this characteristic. Hence, they cannot be called an asset. Therefore, they cannot be used for diversifying beyond India.
An index of the same doesn't make it an asset class either.
Q) What are your views on metals that have so far seen a stellar run impacting commodity-linked stocks positively? Will the momentum continue or does it make sense to cut exposure?
A) It is most likely the result of Chinese activities and their spat with Australia. Unless someone has an expert idea if what is driving it, one should best leave it to people who have that expertise.
Invest in stocks you are confident about the long-term prospects without aggressive assumptions about the future and which are available at a discount to the intrinsic values based on these conservative projections. Leave everything else to speculators and gamblers.
Q) Do you think speciality chemical businesses will continue to attract premium valuations?
This is again highly dependent on China factor. If one has a clear idea of the full dynamics then one can focus on this.
Otherwise, there will be too many reports which will sound sophisticated and the analysts might think they know what they are talking about but the reality might turn out to be different. So leave it for others who feel the expertise in themselves.
Q) Your 3-5 key learnings from COVID second wave?
A) First of all, it is not over until it's over. As they say, it ain’t over until the fat lady sings. One should be prepared for a future where infectious diseases could be lurking around permanently with different variants or even new ones.
Bio-warfare, bioterrorism cannot be ruled out. So we have to be able to run an economy which lives with this constantly.
This means higher level of health infrastructure and services and investments constantly.
Work from home, play from home, learn from home, life from home will be the new normal.
We have moved to a situation where constant vigilance against infection is required at the institutional and personal levels. This is similar to what happened worldwide after 9/11.
On a personal level, learn to live in a dangerous world. Help employees and colleagues operate safely in this new world. Proactively adapt to survive and thrive in this world.
On the investment front, invest in the companies benefiting from life from home theme which includes WFH, PFH etc mentioned above.
We find more companies in the US markets which could benefit and hence have a segment dedicated to that in our US Supreme and AIoT portfolios.
Disclaimer: The views and investment tips expressed by the expert on Moneycontrol.com are his 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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