A) The much-awaited and important events in H2 could be the US Presidential Election in November and the possible success in finding a vaccine for the coronavirus. Any disappointments on both the front could hamper the pace of economic recovery globally.In India, the moratorium period would get over by August-end.
A) We have a positive view on the IT sector. The large deal wins and the encouraging management commentary on the growth outlook makes the IT companies as an oasis of growth in a declining growth environment.We continue to favour large-cap IT companies with Infosys and HCL Tech as our preferred picks. We are selectively positive in the midcap IT space with a buy call on L&T Technology Services and Mastek.
Q) RIL 43rd AGM had a lot of surprises for the D-Street. Where do you see the company transforming let’s say in the next 3-5 years?
A) In the AGM, RIL showcased some of the initiatives taken to strengthen its digital business in terms of the proposed innovative products and solutions. The initiatives are in line with the group's stated objective of emerging as a dominant global player in the digital space.
The company has the right partnerships and investments in place to do so. Another sunrise business for Reliance group is the retail business that also has an immense growth opportunity ahead.
In addition to the growth plans of these two sunrise businesses, the transformation of its core business of refining & petchem could be the next defining move for the company.
As stated in the AGM, the deal with Saudi Aramco has been delayed as of now; however, there are other global players who have shown interest in RIL's crude oil-to-chemical value chain. The partnership on this front would be an important factor for the overall transformation of the company.
Q) One trend which was evident 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) Equities have attracted investor attention due to the comparatively weaker return profile of other asset classes like real estate and fixed income. Also, the volatility has offered an opportunity to new investors to buy good quality stocks at better price levels.
Hence, unlike the past deep corrections, the retail investor have not withdrawn from the equity markets in volatile times instead many new-to-market investors/traders have entered the equity markets lately.
During the lockdown, many retail investors could also spare time to understand and learn about equities which seem to have resulted in an increase in the activity.
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) Given the bumper harvest, normal monsoons, healthy sowing trend this season, and the sharp increase in the minimum support price (MSP) for many crops, the farm incomes are likely to stay healthy this year.
Moreover, the spread of coronavirus has also been relatively lower in many rural/semi-rural areas of the country. Thus, rural demand-driven businesses are likely to show better financial performance and are attracting investor attention. In this space, we prefer companies like Dabur, Coromandel International, HUL, M&M, UPL
Q) Growth is likely to take a hit this is given, but how can equity investors turn the falling GDP scenario into benefit? Which sectors are likely to see a rebound once the tide reverses?
A) In the current fiscal, the financial performance for many sectors will be weak due to disruption created by the extended lockdown and constraints on physical meetings and travelling. Thus, the companies are valued at the earnings estimates for the next fiscal FY2022.
From investors’ perspective, the volatile phase should be used to accumulate quality stocks from sectors/spaces with structural growth outlook like private banks, insurance, specialty chemicals, etc, or from beaten-down sectors like consumer discretionary, building material among others.
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) Within the financial space, it would be better to stick to quality names that are able to raise equity capital and debt (at the right cost) due to the strength of their balance sheet, track record, and pedigree.
Thus, companies like HDFC, Bajaj Finance, Cholamandalam Investments would be better placed to raise resources for growth and capture market share as the situation stabilises going ahead.
Moreover, the unwinding of the moratorium for borrowers post-August could throw up some surprises and create challenges for the financials companies with weak balance sheets.
In the auto space, we believe that the recovery in volume sales would be relatively better two-wheeler segment as compared to passenger cars and commercial vehicle segments.
Moreover, healthy farm income offers a favourable macro environment for farm equipment companies like Escorts and Mahindra & Mahindra. These two segments could outperform the overall markets in the coming months.
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