There is a high probability of a knee-jerk reaction in equities globally as well as domestically. However, the impact may be short-lived. The broader policy path will continue with or without Donald Trump with some minor changes and economics will prevail over sentiments, Prasanna Pathak, Head of Equity of Taurus Mutual Fund said in an interview to Moneycontrol's Sunil Shankar Matkar.
edited excerpts:
Q) The US will conclude its 59th quadrennial election on November 3, 2020, one of the most unconventional US presidential races given the current political environment and COVID-19. Do you think the US elections will have an impact on Indian equities? What is your strategy?
A) There is a high probability of a knee-jerk reaction in equities globally as well as domestically. However, the impact may be short-lived. The broader policy path will continue with or without Donald Trump with some minor changes and economics will prevail over sentiments. The structural issues and concerns will prevail. A few things which may be under the carpet may come out post-elections. We would prefer to adopt a cautious strategy going into November.
Q) What are your thoughts on IT earnings announced so far (TCS, Infosys, Wipro, HCL Technologies, Mindtree, Cyient), and have you made changes to your IT basket after earnings? What is your advice and general outlook on the sector?
A) The IT numbers have been good. But more than the numbers, the commentary has been very encouraging. This is also supported by actions like buyback and delisting etc. which conveys confidence. The COVID-19 pandemic seems to have further accelerated IT spends and digital drive for companies. New technologies like 5G, IoT, automation etc may drive more spend on implementation, services and maintenance. The deal-win and earnings momentum is expected to continue for the next 3-4 quarters at least. We would prefer the larger IT companies.
Q) The market has been gradually inching higher amid volatility and consolidation. Do you think the Nifty will hit a record high by December-end?
A) Markets are very close to the all-time highs and a new high is a possibility driven by liquidity. However, the risk-rewards are not favourable at this juncture and one should be cautious.
Q) Going ahead what could be triggers for the market? Also, what are the major risks both globally and domestically?
A) The events/ factors to look out for (possible positive or negative) are global liquidity, US elections, 2nd wave of pandemic and how it pans out, fiscal stimulus (global and domestic), geopolitical situation - how it evolves, trade wars/ tariff and its impact, interest rate trajectory and corporate earnings.
Q) The RBI recently increased the Loan to value ratio to 90 percent for home loans below Rs 30 lakh and Knight Frank India said Indian real estate witnessed private equity investments of $2,308 million so far in 2020. Should one add real estate stocks to the portfolio now and what is your pecking order?
A) The real estate is an important sector of the economy and is crucial in the revival of the economy. It is heartening to see the RBI and government coordinating to revive the sector. There has been a consolidation in the sector. The supply of new projects is down dramatically. Inventory is also declining. So, these are good signs. The demand side may take some time to revive given the current uncertainty, but once it revives, the recovery will be dramatic as the supply-side takes longer to adjust. So for medium to longer-term, especially for the housing side, things look good. Again here, one should stick to the larger players with strong balance sheet.
Q) After a mini fiscal package announced by FM recently, do you still expect more such measures from the government to stimulate demand?
A) Given the current finances, the government has been very prudent in announcing stimulus. The measures announced so far have resulted in minimal direct cash-flows. However, they have been working with RBI for a higher monetary stimulus and liquidity infusions. I think once there is more certainty on the pandemic and vaccine front, there may be more meaningful fiscal stimulus.
Q: What are value buy sectors now which can double investors' wealth by 2022? Kindly mention stocks from those sectors.
A) IT, Pharma, chemicals and Agri-related sectors have relatively higher visibility. Among the value/contra-buy, one may consider Infra, Real estate and Auto sector with a medium to longer-term horizon.
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