Amnish Aggarwal, Head – Research, Institutional Equities, Prabhudas Lilladher, said that ‘out-of-home’ and discretionary segments could come under pressure in the coming 1-2 quarters as top 10 cities account for nearly 40% of India’s consumption and they seem to be facing the brunt of Covid-19.
Aggarwal has about 17 years of experience in Indian financial markets. A Post graduate in Finance from ICFAI, he started his career as a Research Analyst with First Global Securities. Although he looks at the entire gamut of sectors, his expertise lies in consumption-related sectors.
In an interview with Moneycontrol's Kshitij Anand, Aggarwal said that he is cautiously optimistic on the markets in the long term, but for now it seems to be ignoring a possible downgrade in earnings led by localised lockdowns and the impact on consumer sentiment due to the second wave of Covid-19.
Edited excerpts:-
Q) What is your take on the markets? We are heading towards 50K on the Sensex, and 15,000 on the Nifty. Who is buying because FIIs are net sellers in April and what is leading to the optimism?
A) We are cautiously optimistic about the markets in the long term. However, the markets seem to be ignoring a possible downgrade in earnings led by localized lockdown and impact on consumer sentiment due to the second wave of Covid-19.
Markets seem to convey that it is a temporary disruption.
Q) After a strong April, where do you see markets in May? Will the adage ‘Sell in May and go away’ come true in 2021?
A) We believe that there could be some cut in NIFTY EPS as we go along the earnings season. The current bout of uncertainty makes it difficult to judge the actual impact of COVID-19 on consumer demand and corporate profits in the medium term.
While we won’t recommend ‘sell and go away', we expect a reasonable 5-10% correction in markets due to the current situation. Our long-term outlook remains intact and we would like to advise buying stocks on declines.
Q) What is your take on the much-talked about Zomato IPO? Do you think the valuations are sky-high amid the challenges?
A) Digital and Internet-based businesses are trading at a huge premium in the Global markets as they are platforms of the future.
While there could be challenges in the near term, the long-term outlook for these businesses remains exciting.
Q) We are not done with the second wave, and talks about a third wave have already begun. Do you think the third wave could even be more devastating?
A) It is too early to say whether we will have a third wave or how this COVID-19 crisis is going to end. However, our experience of the past year suggests extreme caution.
Q) What is your takeaway from March quarter results so far? Do you think the outperformance could continue in the next few quarters amid the second wave?
A) Control of the second wave is key to sustaining strong corporate performance in the coming quarters. While base in 1Q is low, we have high base quarters of 3Q and 4Q, so the pandemic has to come under control and normalcy has to return.
So far the results have been mixed with a strong performance from Cement, Banks, and select consumption names. Non-banking financial and IT have been a mixed bag.
We believe ‘Out of Home’ and discretionary segments could come under pressure in the coming 1-2 quarters as the top 10 cities are nearly 40% of India’s consumption and they seem to be facing the brunt of Covid19.
Q) Metal stocks have been on fire in April. What is fueling the rally in commodity-driven stocks, and do you see the outperformance to continue?
A) Firm global prices have led to a strong rally in Metal stocks. Hopes of the US recovery, China’s plan to not disrupt the Global Metal prices, and rebuilding of an aging US Infrastructure are key triggers for Metal stocks.
Outperformance will be a function of trends in the global metal prices, which we expect will hold firm in the near to medium term.
Q) Any 3-5 COVID19 lessons on investing which you would like to share with readers?
A) Last year’s pandemic has taught us several lessons, the most important is being patient in investing and focus on fundamentals.
Post a meltdown in markets last year, companies with strong management, brands, balance sheets, sustainable moat, and strong cash flows were the first ones to bounce back.
So avoid companies that don’t have a sustainable competitive moat whether in branded or Commodity segments.
Don’t fall prey to market volatility and stay focused on long-term value in stocks as markets can behave very strangely in the near term. Never sell in panic, instead act purely on fundamentals and intrinsic value.
Disclaimer: The views and investment tips expressed by the investment experts on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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