Investors should focus on getting their allocation right. A mix of equity, debt, and gold seems to be an ideal portfolio in the current scenario.
Coronavirus, which has infected more than 100,000 people worldwide, is also threatening to destabilise the financial markets across the globe. The tremors have already been felt with equity markets falls in double digits in a just matter of days.
The S&P BSE Sensex hit a record high of 42,273 on Jan 20, and since then the index has lost by about 16 percent or more than 6,600 points.
In such a scenario, investors are looking for a portfolio that remains unaffected by the damage done due to the spreading of Coronavirus.
Building a Coronavirus-free portfolio will be tough but not impossible, suggest experts. The supply disruptions caused by Coronavirus will impact most of the sectors but there are a few exceptions.
For traders, the past few days have not been easy, but for investors, this is a golden opportunity to buy into quality stocks which are now available at a steep discount.
“Given the widespread simultaneous near-term demand and supply shock, it is not easy to construct a COVID-19 free portfolio. However, focusing on fundamentally-strong proven business models with strong management and corporate governance, sustainable competitive strengths and a robust balance sheet with inherently strong profitability and return ratios will help have a resilient portfolio mix,” Rakesh Parekh, Head - Portfolio Management, JM Financial Services Ltd told Moneycontrol.
“A key theme which is likely to emerge in a post-COVID-19 world is the diversification of supply chains. Indian industry seems well-placed to capitalize on attracting investments towards the diversification of supply chains,” he said.
Parekh further added that once the dust settles down, we are likely to see a sustainable drive towards supply chain diversification which should benefit industries across the spectrum – consumer, autos, durables and electronics, chemicals, pharmaceuticals, textiles, etc.
One mistake that investors should avoid is discontinuing their SIP or systematic investment plans or selling their stocks because the stock prices are falling. It would make sense to diversify the portfolio towards fixed income, and govt bonds, suggest experts.
“Investors must not panic at this point. The spread of Coronavirus cannot be predicted and as such, there is no ready made alternative. In this time, selling equity portfolios at depressed market prices is not sensible. This event will hopefully pass in a few weeks or months and things will improve,” Sameer Kaul, MD & CEO, TrustPlutus told Moneycontrol.
“The immediate gainers will be government and high-grade bonds. Discretionary spends related to travel and entertainment are likely to be affected the most in the immediate future. Investors should use the opportunity to invest into quality companies available at reasonable valuations,” he said.
We have collated views from various experts on how to build a Coronavirus-free portfolio:
Expert: Sahil Kapoor, Chief Market Strategist, Edelweiss Wealth Management
Investors should focus on getting their allocation right. A mix of equity, debt, and gold seems to be an ideal portfolio in the current scenario. There are many companies in India that have very little by the way of damage to their businesses because of coronavirus.
From a portfolio point of view investors with a long-term horizon should ideally pick businesses making more than 20 percent ROC with sustainable topline growth. The ongoing turmoil in markets presents an opportunity to gain and add such businesses to their portfolio.
The next set of stocks could come from sectors that benefit from a sharp crack in raw material prices. The sectors for the likes of paints, pipes, chemicals, and OMCs to a certain extent represent areas that can benefit from the current market turmoil.
And lastly, the healthcare and health services sector comprising of healthcare service providers like hospitals, pathlabs, and equipment manufacturers represent another set of the market segment which can help tide over the current phase.
Investors equity universe, therefore, should reflect sectors like non-discretionary FMCG, Healthcare, consumption and a dose of short term debt accrual funds.
Expert: Rajesh Cheruvu, CIO, Validus Wealth
Striving to construct a Coronavirus-free portfolio is a challenge. But, one could endeavor to focus on certain themes.
Crude oil-linked sectors:
Due to the expected hit on global demand, Crude Oil is likely to see a slump. As a result, companies with Crude oil linkages are likely to benefit from margin compression provided they are at least able to just maintain top-lines.
Tyre, FMCG and downstream OMC companies stand to benefit from improved FCFs thanks to potential margin uptick.
Home Décor companies which used to face competition from imports from China (Tyres as well fall in this bracket) would also likely stand to benefit from supply disruptions there. In the long run, should COVID-19 pandemic prevail, stocks with safe-haven characteristics would be the go-to avenues?
IT, Staples, Dividend:
IT Sector (preferably domestic-focused as most have relatively high foreign exposure that is linked to current muted demand), Staples (except where there is no element of meat consumption), Utilities and high dividend yield stocks can be likely attractive candidates.
In terms of direct risk, pharma companies that are not vertically (and backwardly) integrated i.e. do not have their own captive API (Active Pharma Ingredient) unit could be at risk.
Expert: Viram Shah, CEO, and Co-Founder at Vested Finance.
The key for investors is to avoid knee-jerk reactions to all the Coronavirus news that they are bombarded with. It’s still too early to know the severity of the virus and the global economic impact it will have.
For active investors, they would need to study the impact of the virus on the companies they watch. Some global pharma companies might stand to benefit from the additional revenue.
For passive investors, it is times like these when having a diversified portfolio really helps. For example, a portfolio that was 100% invested in the S&P 500 lost 5% over the last month whereas a portfolio diversified across gold, debt, commodities, and equity actually gained 2.5% over the last month.Disclaimer: 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.