It is an excellent opportunity to start accumulating, if you have money, invest some and wait for the markets to move, Jashan Arora, Director Master Capital Services, tells Moneycontrol’s Kshitij Anand in an interview.
Edited excerpts:
Q) A lower circuit and then some recovery on bourses. What is the way ahead for markets in the near term?
A) The Indian stock market in the first 15 minutes of trade hit a lower circuit last week. Trading stopped across the board for about 45 minutes as markets continued to witness panic selling.
While the investors were expecting another lower circuit of 15 percent on the indices, the sentiment got changed altogether. Volatility will remain until markets believe that the peak of coronavirus cases has been reached and that may be some time away.
Globally, governments and central banks need to step in and bring stability and confidence back both for companies and investors.
Q) The Sensex and the Nifty are in a bear market along with global peers. Data suggests that Nifty witnessed a fall of 25-28% before bouncing back. Do you think this time, too, the downside is limited from here?
A) Over the past few weeks, the fear of coronavirus has sent the markets tumbling. Although the coronavirus is a new territory for us, the stock market turbulence is not.
Many people have lived through several at this point but it doesn’t make any of them less scary. No two stock market crashes are alike but they all have one thing in common--the market recovers eventually.
There will always be turbulence in the stock market as it is cyclical in nature. No one can make predictions what will happen next and how long this will last. But, history has taught us that the market recovers and so do we.
Q) What does your experience of bear markets tell you–time to catch the fear? Investors who put money when the market hit lower circuit--say in 2008--have created massive wealth. Do you think we are in a similar situation?
A) The kind of situation we were in 2008 was very similar to the current situation but the market in 2020 is actually better than it was in 2008 if we compare.
The leverage was extremely high in the system in 2008, as we were in the early stage of an NPA cycle. The crude oil prices before they cracked were also extremely high.
After 2008, the market cap to GDP was close to the historical market bottom. In today’s market, the market cap to GDP ratio is at very low levels as well.
Earnings cycle, profits to GDP in 2008 was at a near peak and now probably last year the bottom has been made.
Q) What are you telling your clients–sit tight or buy in a staggered way?
A) Suddenly stocks are much less expensive than what they were only a few times ago. We are advising investors that there are lots of stocks that you wanted to buy but did not do considering the high valuations.
Now the valuations are comparatively looking good compared to what they have been in a long time. It is an excellent opportunity to start accumulating, if you have money, invest some of it and wait for the markets to move from here.
The market gives these opportunities once in a while. A long-term investor or someone who is trying to build his portfolio has to start getting into the market now.
Q) The good news is that MFs are still receiving inflows, which means that investors trust equities despite massive selloff. Do you think the trend will continue or do you see redemption pressure?
A) Equity mutual fund inflows in February increased to Rs 10,730 crore, the highest in 11 months, even as the broader stock market witnessed concerns over the coronavirus impact and heavy volatility.
According to data released by AMFI, net inflows into equity mutual funds and equity-linked schemes rose from Rs 7,547 crore in January to Rs 10,730 crore in February. Since March 2019, this is the highest investment when equity mutual fund schemes attracted an inflow of Rs 11,756 crore.
Though Indian investors viewed the fall in the market as an opportunity to buy into equities and invested in equity funds, they also continued to focus on the multicap category with the aim to benefit from the opportunities arising in all the three equity markets segments (large, mid and smallcaps) by staying invested in one fund.
Experts expect continued buoyancy in SIP flows in March, too, though given the deep correction in markets, a few institutional investors may reassess their investment strategy.
Q) Where is value in this market? Most of the stocks are available at multi-year lows. How should investors decide which one is a better value play?
A) As most of the stocks are available at multi-year lows, investors who want to invest in the market now can select stocks based on their valuations and fundamental analysis of stocks based on the ratios and the past performance of the company.
Another factor which we can consider at this market level is the correction in the levels of the stocks.
Q) What are your views on Yes Bank reconstruction?
A) As per the reconstruction scheme notified on March 13 for Yes Bank, a three-year lock-in up to 75% of their holding was prescribed for all investors, including retail investors.
An investor holding up to Rs 2,00,000 of a stake in a company is referred to as a retail investor. Retail investors in Yes Bank have a stake of 43.66 percent and the total number of shareholders under this category was 16,18,325 at the December quarter-end.
Now, retail investors holding more than 100 shares as on March 13, 2020 are not allowed to sell more than 25 percent of their holding.
Only retail investors holding shares up to 100 shares are exempt from the lock-in. It is unusual for a scheme to not allow, retrospectively, the existing shareholders to sell their shares. The main objective of lock-in may be to minimize the volatility but this could affect retail investors adversely too.
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.
