India’s macro situation is getting more stable, thanks to the fall in the commodity prices, China losing its export advantage and a drop in global interest rates, Jyoti Vaswani, Chief Investment Officer of Future Generali India Life Insurance, tells Moneycontrol's Sunil Shankar Matkar in an interview.
Edited excerpts:
Q) The coronavirus outbreak has butchered every asset class globally and there has been a huge wealth erosion, with the Indian market tanking over 37 percent from its record high in just two months. What lies ahead for the market?
This is not the first crisis that financial markets are witnessing and history has proven that we have always bounced back and emerged stronger. Yes, in the current context the pain of sharp correction and wealth erosion is substantial, as fear has become a dominating emotion, leading to overreaction across the globe and asset classes. We are certain that just like several challenges in the past, we shall overcome COVID-19 too. And that may happen sooner than expected, as all stakeholders are taking swift and effective corrective actions. Also, we need to have faith in the human race, which has over the years demonstrated its ability to overcome any grave situation.
Market has seen severe correction and the Nifty is trading at a substantial discount to historical valuations. Also, the Indian macro situation is getting more stable, thanks to the fall in commodity prices, China losing its export advantage and falling global interest rates, which have actually set the macro situation in favour of India. And most importantly our long-term structural growth drivers such as a young demographic, continued structural reforms, improving infrastructure, urbanisation and a rising middle class remain strongly intact. Thus, the current correction in stock prices should indeed be perceived as an opportunity by investors as risk-reward is now highly favourable. Our advice is to continue adding equity exposure with every substantial decline.
Q) Investors typically have a shopping list ready when there is a fall of 15-16 percent, but now the fall is 37 percent. Is this the right time to invest or one should wait for the market to settle down?
Today, COVID is front and centre of investor's mindshare, as markets are amidst fear and have created history -- sharp decline in yields, lowest 10-year yields in the US, oil prices at 20-year lows, and sharpest equity market fall in recent history. It is always difficult to catch the bottom, as every stock market correction brings with it its own unique characteristics. While troughs are always defined in hindsight, stock valuation is definitely attractive today and make a strong case for investing in equity.
Nonetheless given the volatility being high, it is difficult to gauge short-term market performance but one can safely assume that from current levels, it is difficult to lose money if you remain invested for the next five years. If you are investing for the next five-ten years, then your focus should be on the opportunity and the way to harness it. One should keep investing as per goals and leverage on these falls in the markets. We believe that the current correction in the market provides investors a great opportunity to increase allocation to equity markets for medium to long term.
Q) As most stocks are available at suppressed valuations, which are the sectors to bet on with a two or three-year horizon?
We expect pharma, telecom, downstream oil companies and consumer staples to do well. We also see deep value in some pockets of the markets like PSUs. We expect domestic manufacturing to be a big beneficiary of the current COVID-19 as companies look for alternate sourcing base to de-risk their supply chains (chemicals, electronic manufacturing etc). We would also like to have some allocation to traditional defensive sectors like IT and pharma in these uncertain times. With the current sharp correction, banking and finance is also looking attractive.
Q) What is your advice to investors, as portfolios have lost more than half of their value?
We urge investors to give a more profound thought to this situation and not get carried away in this tough situation. It's important we have confidence in our ability to deal with these tough situations. We strongly believe that this too shall pass as humankind has time and again done it. We know that markets come back from every correction and eventually make new highs.
Even the 2008 market collapse--the worst in recent times--is a testimony to this. History has exemplified time and again, and there is no reason that this trend will reverse. And this time around, we are seeing proactive monetary and fiscal measures across the globe, which will help in a quicker recovery of the economy. Staying on course is what makes someone a successful investor. One should keep investing as per goals and treat this fall as an opportunity to build more equity exposure.
Q) The virus is spreading rapidly in Europe, worrying markets globally. What is your global growth projection?
Global growth in the near term will certainly decline as most of the world is in a near lockdown. Consumption has clearly seen a sharp slowdown. While Europe has not been part of global growth in recent years, it has certainly provided a solid base. We see a significant decline in growth for this quarter and the next.
We hope to see a sharp improvement in the second half of the calendar year as long as we manage to contain the contagion. As the situation improves (as we strongly believe that it will eventually), we expect consumers and businesses to replenish. Consumption and inventory levels will rise again resulting in sharp recovery for global growth.
Q) Gold, too, is caught in a bear hug and the US bond market is in turmoil. Why is there so much pessimism?
As per our understanding, the primary cause of pessimism is uncertainty-- how much damage will the virus cause to the global economy and how soon can we contain the virus. This is probably the first time that an epidemic is spread across the globe and a cure is elusive. This has resulted in fear not only about the economy but one’s own survival and well being. Empirical evidence suggests that investors and markets have always overestimated the magnitude of loss in times of crisis. This is a classical cognitive bias among investors. From a market perspective, greed and fear are two such emotions. History is flushed with examples of where greed and fear have impeded investor's ability to take rational decisions (and they have always repented later). One must invest when everyone is fearful and asset classes are available at a reasonably good price.
Q) FIIs have sold over $7 billion worth of shares in India since February 24, but DIIs continue to support the market. When do you expect a revival in FII money?
We have seen a global risk-off trade, wherein FIIs have pulled out a significant amount of money from all emerging markets, including India. While the quantum of selling has been quite large over the last month, DIIs have been able to absorb the entire selling, which is a very positive sign. As the virus situation is contained and as clarity about the extent of damage to the economy emerges, we expect FIIs to come back as India remains a very lucrative investment destination as its long term growth drivers remain intact.
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.
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