Time to reset economy

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Time to reset economy

Last Updated : Nov 24, 2019 08:49 AM IST | Source: Moneycontrol.com

'Insurance stocks must have in portfolio, avoid allocation to gold in near term'

Sticking to fundamentals is the only mantra. Look at the hard data and not stories.

The historical weight of evidence suggests that markets usually gain traction two-three quarters ahead of the actual headline earnings numbers bottoming out. The reversal of 2000-2002 or 2008-2009 falling market is reflective of this trend. But, one has to be highly careful in cherry-picking, said Dharmesh Kant, Head-Retail Research, IndiaNivesh Securities, in an interview to Moneycontrol's Kshitij Anand.

Q: What is your assessment of the September quarter earnings season? If you had to describe it in one word –what would that be? And, what were the highlights?

One word – 'Dismal'. Barring banks and NBFCs, Q2FY20 earnings were largely a dismal state of affairs. If we look at aggregates of ex-financials, be it Nifty50, Next150, Next300 or Top 500 market cap stocks, revenue and operating profit de-grew on YoY basis.


The same is reflected in tax collections be it GST or direct taxes, IIP or core industries numbers for the month of August and September, tepid WPI inflation, faltering consumer spends and volume de-growth in diesel sales for October.

The silver linings, if one may call it, were lower slippages and better topline growth in financials. Banks, NBFCs and HFCs reported revenue growth in mid-teens and stable asset quality.

Q: iIn October, fund managers increased their stake in insurance and AMC companies such as ICICI Lombard, HDFC AMC, and HDFC Life Insurance in the large-cap space. In the mid-cap space, The New India Assurance also got attention. Can these be the next Sensex stocks which investors can look at?

Yes, most likely, going forward. Maybe, in the next 10 years or so. These are high-growth sectors for the future. The penetration level of insurance products is still quite low in India. There is plenty of scope in India-centric customised insurance products. A must have in one’s portfolio.

Q: The macro data is far from rosy, in fact, it is getting worse by the quarter. At the same time, benchmark indices are trading near record highs. Is it time to act on Warren Buffett's advice and buy the ‘fear’ because small & midcaps are down 20 percent from the respective record-highs?

The historical weight of evidence suggests that markets usually gain traction two-three quarters ahead of the actual headline earnings numbers bottoming out. The reversal of 2000-2002 or 2008-2009 falling market is reflective of this trend. But, one has to be highly careful in cherry picking.

Q: After a recent downgrade of Moody’s outlook on India, as well as the GDP growth, all eyes are on the GDP numbers. Do you think we would slip below 5 percent for the September quarter? Do you think the Street has factored in that number, or will there be a knee-jerk reaction?

Looking at the core sector industries, IIP or GST numbers for Q2FY20, GDP growth slipping below 5 percent for the September quarter is very likely. A knee-jerk reaction can be ruled out when it is printed in black. But, it has been largely factored in by the markets. In fact, a correction, if any, should be used for stock picking and portfolio building.

Q: Gold has been volatile recently, thanks to mixed signals from the trade war front and rupee depreciation? What are your view on the yellow metal, and should I make use of corrections and buy?

Gold, in my view, will undergo a time correction rather than price correction for the next couple of quarters. Further, the allocation to gold should be avoided in the near term.

Q: Rupee recently broke above Rs 72/Dollar. What is the way ahead for the currency?

The rupee is likely to see range-bound oscillation within 70-73 against the US dollar, given the present state of affairs - both domestic and international. Any range break out in the next couple of quarters can happen on account of an unforeseen global event.

Q: We are almost at the end of 2019. What really stood out for markets in the year? Is it the FM’s proactive reforms initiated or the Moody’s change in outlook for India?

Definitely, because of the FM's proactive reforms.

Q: How can investors balance emotions and remain invested in testing time which we saw in 2019?

Sticking to fundamentals is the only mantra. Look at the hard data and not stories. Companies with strong fundamentals like the HDFC twins, Bajaj Finance, Reliance Industries, Hindustan Unilever, TCS and the likes have continued to outperform markets, be it per share price or business growth. Just be sure the businesses in which you are investing are driven by predictable cash flows, at least mid-teen margins, return ratios in excess of 15 percent, foreseeable revenue and profit growth, low debt, and high pedigree of corporate governance.

Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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First Published on Nov 23, 2019 04:25 pm
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