In my view, this pandemic has shown the importance of manufacturing and digital. Manufacturing for jobs and owning a significant part of the supply chain and digital for connectivity.
The factors to be considered while buying value stocks is to determine a) the business model is not broken, and b) Corporate governance practices are healthy. Else most of the value stocks may turn into value traps, Santosh Singh, Head of Research, Motilal Oswal Asset Management Company, said in an interview with Moneycontrol’s Kshitij Anand.
Q) July has been an impressive month for investors with both Sensex, and Nifty climbing above crucial resistance levels. We saw mild profit booking towards the close of July, but would momentum change for the month of August?
A) The markets have been a function of a) Liquidity and b) Data on Economy and CoVID cases. Markets went up sharply in July as liquidity was high and June economic data from GST collection to auto sales were showing sharp turnaround.
Liquidity remains high and retail participation has been growing as of now as well. However, data would not be linear. We have seen some real recovery in demand in the months of June and July and part of which could have been due to pent-up demand in the market.
However, August would determine if real demand is coming in the market or not. This can create volatility in the short-run.
We do not look at these short-term trends so much and we believe that from a 2-5 year perspective, the current pandemic provides an opportunity to the government to come up with reforms that can drive the markets up significantly.
Q) We have seen some massive outperformance from the IT pack. Most of the stocks have hit fresh record/52-week highs the July. What is fuelling the rally, and what should investors do? Accumulate or wait for a dip. Which are the stocks that are looking attractive?
A) Can’t talk about specific stocks; however, the pandemic has made sure that IT stocks are now at the forefront. IT sector would be a key beneficiary of digitisation.
This would remain a key sector for some time, however areas of IT services that can outperform would differ.
Q) India awaits the inclusion of Rafale jets in the Indian Air Force, similarly for portfolio, are there are but any Rafale stocks/sectors which investors could include in the portfolio to safeguard from volatility?
A) Pandemic as well as the current geopolitical environment has compelled the government to come up with reforms that can help India to become self-sufficient in some of the critical sectors.
The government has come up with some policy reforms in these sectors. Key beneficiary being Chemicals, Pharma, and any stock related to Electronic manufacturing.
Q) 2020 gave an opportunity to investors to build their portfolio at a reasonable price. And many new-age investors seized the opportunity. Early trends indicate that so-called Robinhood investors are buying quality stocks. Which are the factors that one should take care while undergoing value investing?
A) The biggest factors to be considered of while buying value stocks is to determine a) the business model is not broken and b) Corporate governance practice. Else most of the value stocks may turn into value traps.
Q) We are also heading towards the Independence Day as well. Sticking to the theme, how can investors attain financial freedom especially at the time when there is lot of uncertainty, and equity markets have rallied without any meaningful change in fundamentals?
A) In my view the basics of investing remain the same i.e. buy the right stock and stay with it for a long time period. It is very difficult to time the market and hence if one wants to attain financial freedom one should stay in the stocks for the long term.
Although some of the quality stocks would have run ahead of their fundamentals and hence can show some volatility in the near term, they would be the key beneficiary of any revival in the economy.
Q) What is your view on the recent results which have come out from India Inc. for the June quarter? They have not been as bad or the commentary from the management seems comforting. Or, was the Street discounting the worst before?
A) Expectations from most of the companies were very low in the current quarter given the lockdown and hence I would not give too much weightage to the results.
However, the commentary seems good, the next couple of months are critical to assess the sustainability of demand. Also in a revival Zero to 70-80% is the easier part, the harder part is to climb from there.
Q) People say that history never repeats but rhymes. Leaders of the past might not lead the future. So which according to you could lead the rally on D-Street?
A) In my view, this pandemic has shown the importance of manufacturing and digital. Manufacturing for jobs and owning a significant part of the supply chain and digital for connectivity.
I would expect some parts of the manufacturing sectors like Pharma, chemicals to lead other than IT. Also, for a developing economy like India banking is the lifeblood and hence it has to lead the revival.
Q) PM Modi’s assurance to the financial sectors was a positive sign. What is your call on the financials? Do you think that investors could contra bet on this sector as the worst seems to be factored in?
A) As I highlighted earlier banking would remain key for India’s revival, however the next three to four quarters would be uncertain for this sector from an asset quality point of view. With most of the banks either raising money or in the process of raising money, I do not expect a Balance Sheet risk. Also, one area in financials that would be a beneficiary of the pandemic is Insurance. Hence these two sectors can be good bets
Q) What are you factoring in from the RBI for the rest of the year? More easing?
A) RBI may remain accommodative in the next six to twelve months, given the economic revival is still very uncertain.
Q) Maruti Suzuki posted a loss for the first time since IPO. What is your call on the auto space? Which sectors according to you can turn out to be a dark horse?
A) As I said earlier I would not worry about June quarter numbers, I would believe that personal mobility has become important due to CoVID and hence this sector may benefit.
Both PVs and well as two-wheelers may gain from this theme as not a lot of people would prefer shared transport if they can afford personal transport. Autos may turn out to be a dark horseDisclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.