The coronavirus pandemic has been a black swan and the response of markets, its participants, and global central banks has turned it into a VUCA--Volatile, Uncertain, Complex and Ambiguous--situation, Vinay Paharia, Chief Investment Officer of Union Asset Management Company Private Limited, tells Moneycontrol’s Kshitij Anand in an interview. Edited excerpts:
Q) The International Monetary Fund’s global outlook is slightly worrying but is not something that is not known to markets. We saw some knee-jerk reaction in equities across the globe and India was no exception amid rising cases of COVID-19. Do you think these factors will cap the upside for Indian markets?
A) The IMF's economic outlook revision is in line with that of many other institutions that have released their recent forecasts for India’s economy.
According to our internal estimates, the fair value of Nifty50 companies has fallen by about 10 percent due to the impact of the ongoing pandemic.
However, over the medium term, this fair value is likely to grow, strongly driven by economic growth. Since the market tracks fair value growth over longer time periods, we remain optimistic about equity returns over the medium to long term.
Q) What is that one word you will use to describe the first six months of 2020?
A) VUCA -- Volatile, Uncertain, Complex, and Ambiguous. The pandemic has been a black swan and the response of markets, its participants and global central banks have made it into a VUCA situation.
Q) Where do you see markets and earnings in the next six months?
A) We think markets have more than factored in the fall in fair values of companies due to the ongoing pandemic and the resultant disruption.
While it is difficult to talk about the next six months, we remain optimistic about markets over the medium to long term.
Q) In the first six months of the year we have seen plenty of buybacks as well as delistings. What is the rationale behind them and will this trend extend into the next six months as well?
A) Most companies are taking the buyback route due to cheaper market prices compared with fair value. Buybacks can increase per share fair value when done at an attractive price. The same logic holds true for de-listing at cheaper valuations.
Q) Which sectors are likely to be leaders and laggards over the next six months?
A) We are overweight on sectors like healthcare, IT and telecom and underweight on consumer discretionary and financials.
Q) Many new investors joined the party on D-Street in the first six months but as we enter the second half of the year, which survival tips will you share with them to keep them afloat amid volatility?
A) Investors can expect to earn good returns from equity if they stay invested for a fairly long period of time. They should avoid both Greed (buying due to fear of missing out) and Fear (selling in panic).
They should take advice from a professional financial adviser and adhere to their investment goals through ups and downs of the market.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.