Franklin Templeton’s fund closure is an eye-opener for the RBI that its liquidity efforts are either insufficient or are not effective in de-freezing the liquidity crisis, Umesh Mehta, Head of Research, Samco Securities, says in an interview to Moneycontrol’s Kshitij Anand.
Edited excerpts:
Q) Franklin Templeton has shut down six credit risk strategy debt funds. This is the second casualty of the coronavirus outbreak after IndiaNivesh. Do you think investors will again lose faith like they did after the 2008 financial crisis?
A) Investors currently are in a state of fear and shock but during such a crisis causalities do happen and the credit risk of debt funds is a natural extension of a liquidity crisis.
Therefore, this is not a systematic crisis but is considered a part and parcel of such downtrends. However, it is an eye-opener for the RBI that despite its liquidity efforts, these measures are either insufficient or are not effective in de-freezing the liquidity crisis.
Hopefully, now that the credit risk debt fund crisis has occurred, it is expected that things will be taken care of at the regulatory end.
Q) What can the government do to mitigate the credit crisis that led to the winding down of Franklin Templeton schemes?
A) There is a lot that the government needs to do to bring back confidence and trust in the economy but all wishes cannot be granted.
The minimum -- the government should take on the risk of credit defaults of SMEs and MSMEs such that they are able to access fresh line of credit to revive their depleting businesses.
This is similar to the government having credited a sum of Rs 2,000 and Rs 500 a month for three months for farmers and women in their Jan Dhan accounts directly.
Q) A volatile week for Indian markets but the Nifty managed to hold on to 9,000, supported by some positive global cues and expectations of a stimulus package. But it looks like 9,300 is a crucial resistance level for the Nifty50. What are your views on the market?
A) 9,300 is indeed a crucial level for the Nifty and acts as strong resistance as it is nothing but 38 percent retracement of the market’s recent fall as per Fibonacci’s retracement levels.
Such levels assume importance because even international markets are hovering around similar retracement levels. Unless we see substantial improvement in the situation on both – the COVID-19 front and the business resumption front-- we believe 9,300 will be a strong resistance level.
Q) What are the important data points and levels to watch out for in the coming week?
A) 9300-9400 levels will be a cluster of strong resistance for the market and any increase in VIX may resume the downtrend in the bourses.
Nonetheless, astute government stimulus and important policy decisions to kick start the economic engine, which is currently at standstill, are expected to be key pointers for the markets going ahead.
Q) Small and midcaps underperformed and we are seeing some stress in the broader market space. Has falling GDP growth rate made things worse for some stocks? What should investors do if they have small & midcap-focused portfolios?
A) Amid continued deterioration in the economy, small and midcaps have really been hit hard. But, this is a matter of reality, those who are strong and large will lead as and when things start to look brighter.
It is also feared that some small and midcap companies might go into oblivion in dark times like these. Some of them may even destroy complete values.
Therefore, as a prudent approach, one may consider switching from such funds to largecap frontline funds. This would certainly be a difficult decision but would pay off in the long run.
Q) There is so much volatility. Are there any all-weather stocks that one can look at?
A) Assuming that someone really wants to remain invested in equities at all times, then FMCG as a sector should act as a defensive play, although that sector, too, might see some profit booking if the market goes deeper into a recessionary spiral.
Ideally, it is said that in bull markets equity is the king and in uncertain times cash is the king. One has to remain invested selectively but at the same time keep liquidity in order to take advantage of further falls.
Investors will have a long time to pick and select stocks for investment. Beaten down sectors and stocks ideally should outperform markets once the bull market resumes and defensives would then underperform.
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.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
