Ankit Agarwal, fund manager – equity, UTI AMC, says that are investing around 30-40% of their portfolio in turnaround opportunities that are possibly impacted due to the current economic scenario, but would benefit disproportionately when the tide turns.
For example, companies in the travel, retail, leisure, and services segments currently hurt could be a good hunting ground for new opportunities, he added.
Agarwal has more than 12 years of experience in asset management. Prior to UTI, he has worked with Lehman Brothers, Barclays Wealth and was associated with Centrum Broking also in the capacity of senior vice president.
In an interview to Moneycontrol’s Kshitij Anand, Agarwal said healthcare, consumer staples, and possibly IT would be back in focus given the partial lockdowns and intensifying second wave of COVID-19.
Q) The second wave of COVID has gripped India fast and has forced many states to go into a semi-lockdown in April. Do you think the market could undergo further consolidation in April or the worst is already factored in?
A) I would refrain from giving any shorter-term view on the market, but I would say that with higher penetration of vaccination and country heading towards herd immunity, the blip in operating performance could be temporary.
The value of a company comes from long-term cash flows discounted to the present date, and in that context, the contribution of near-term cash flows is a much smaller part of the business' intrinsic value.
While a near-term correction cannot be ruled out, sooner or later, the market would converge to the companies' long-term fundamentals.
Q) After Goldman Sachs and Nomura, economists warn of more cuts in FY22 GDP forecasts. If the economy fails to grow in a manner that is discounted by the market, it will also hurt the earnings of India Inc...
A) The current second wave would undoubtedly impact the recovery we saw in many sectors, and the ones that have a higher seasonal component can see some pressure on earnings.
However, I would reiterate that our investment strategy is more pivoted to long-term structural trends, and as long as those are intact, we won't be too worried about any near-term pressure on earnings.
Any prudent investment strategy needs to be balanced to benefit from different phases of the economy, and appropriate diversification would help mitigate some of the idiosyncratic risks that some of the companies would face owing to the current lockdown.
Q) Which sectors will be back in focus amid a lockdown-like scenario? Which sector(s) should one add on corrections?
A) Healthcare, consumer staples, and possibly IT would be back in focus as these sectors are relatively less impacted owing to the current crisis.
However, some companies in this space would also make investment sense from a structural perspective and form an integral part of any long-term portfolio.
We also invest around 30-40% of the portfolio in turnaround opportunities that are possibly impacted owing to the current economic scenario but would benefit disproportionately when the tide turns.
Well-managed businesses and leaders in some of these spaces would benefit from market share gains as the weaker players get wiped out. Companies in the travel, retail, leisure, and services segments currently hurt could be a good hunting ground for new opportunities.
Q) Which sectors will get impacted the most from the second COVID wave and why?
A) Many sectors in the discretionary space, travel, leisure, and retail segments would see significant pressure in the current environment as the footfalls typically would reduce due to fear of COVID even if there is no lockdown in the specific state.
Some of the B2B sectors and industries could also get impacted owing to supply constraints in raw materials or any localised lockdown in the particular areas. Financials would also get affected as the asset quality could deteriorate in specific segments.Q) Since small & midcaps have outperformed, should investors leverage the opportunity from the midcap fund route?
A) We would say that investors should look at the mid and small-cap funds from an asset allocation perspective and believe that any asset allocator should have some exposure to the mid and small-cap funds as they have outperformed on a longer-term view.
However, in the medium term (3-5 year period), midcap funds have underperformed. Once the dust settles on COVID and the broader economy revives, and if the interest rate continues to remain at benign levels, the smaller companies should benefit on a relative basis.
Q) Do you think the volatility caused by the second wave of COVID gives an opportunity to get into some quality stocks for the long term?
A) While I cannot comment on the near-term movement of the market, investors should use any correction in the market to deploy more capital as we continue to remain positive on the longer-term prospects of well-managed companies that are leaders in the space they operate within.
COVID has only fast-tracked some of the trends we observed relating to higher digitization, formalization, and market share gains. Also, investors can use SIP approach to tide through some of the volatility they see in the market, especially when investing in the mid and small-cap segments.Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.