“As investors, we do not like restructuring of loans as it increases the opaqueness of bank's balance sheet. However, the central bank has increased the dis-incentives for banks for corporate loans restructuring by prescribing additional provision requirements," Vinay Paharia, Chief Investment Officer at Union Asset Management Company, tells Moneycontrol's Sunil Shankar Matkar in an interview. Edited excerpts:
Q: The market is at a five-month high, with broader indices also performing at the same pace. There has been significant progress on the vaccine front with the first registration by Russia. Should one increase equity exposure in a portfolio or wait for a correction?
Markets follow fair values over medium to long term. According to our internal analysis, the fair value of the Nifty50 index in FY21 fell by approximately 10 percent from February 2020 levels, while markets have also seen a similar correction. At current levels, markets continue to trade at a small discount to its current fair value. This value is likely to compound strongly driven by economic growth and hence, we remain optimistic about investing into equities with a medium to long-term time horizon.
Q: Which are the sectors that can generate ample wealth over the next two to three 3 years, especially after COVID-19?
Wealth can be generated by companies or sectors which are either cheap or which are growing at a rapid pace and are available at a reasonable valuation. We like sectors like utilities for its cheapness and sectors like telecom, IT and healthcare for their growth characteristics.
Q: What is your advice to investors who entered the market during the lockdown?
What has happened over the last six months is unprecedented and hence profits or losses made in that period should not be extrapolated into the future. Investors can earn superior 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.
Q: The RBI has announced a one-time loan restructuring but with riders. What are your thoughts and will it solve banks’ NPA (non-performing asset) problem?
As investors, we do not like restructuring of loans as it increases the opaqueness of bank's balance sheet. However, the central bank has increased the dis-incentive for banks for corporate loans restructuring by prescribing additional provision requirements. According to us, while the restructuring scheme may give a temporary breather to corporates, it cannot resolve all the NPA problems for banks.
Q: Do you think the market is due for a major correction which can drag the Nifty to 10,000 or it is just consolidating around current levels to march towards 12,000 in the coming weeks?
According to our analysis, markets are trading at a small discount to their current Fair Value and hence we do not feel that it is overvalued. In fact, the fall in interest rates can act as a meaningful tailwind for equity valuations and make it more attractive for long-term investors.
Q: Do you think midcaps and smallcaps can beat the benchmarks indices this year, especially after two years of underperformance?
According to us, currently all the three segments of the market capitalisation curve are reasonably valued and offer broadly similar upsides. We are optimistic on all the segments of the market over the medium to long term.
Q: Pharma has emerged as the leading sector in the rally. Do you still want to buy in this space and are you bullish on the sector?
The pharma sector witnessed a significant time and price correction over the last four years. Most companies have restructured and improved their cost structures, tweaked their strategies and positioned themselves to capture the emerging opportunities offered by the sector like CRAMS, API manufacturing, etc. We have a positive view on the sector.
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.
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