We should acknowledge that we are in a period of radical uncertainty, and as a rule, we should raise cash levels to be ready with any contingency as well as opportunity, Sameer Kaul, MD and CEO, TrustPlutus Wealth Managers (India) Pvt. Ltd., said in an interview with Moneycontrol’s Kshitij Anand.
Here are the edited excepts of the interview:
Q. What is your view on the government taking a stand against FDI from China? Also, there are a lot of FIIs which have invested in India which are based out of China. Do you think a similar treatment should be given towards that as well?
A. The steps taken by the government to restrict any unwanted accumulation of stake and takeover is in line with the decision taken in other countries.
India continues to be an attractive destination and we should focus on our strengths to attract more foreign capital and not worry about short-term distractions that may be linked to current compulsions.
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Q. March quarter earnings are likely to stay muted but management commentary will be eyed. What are your expectations from India Inc. when most economists are foreseeing in a GDP growth of near zero for 2020?
A. While the impact on March quarter earnings will be limited since the lockdown came into effect towards the end of March, we do foresee no growth or de-growth in all businesses maybe except consumer staples for the rest of the year.
As companies announce earnings, one realizes that it is difficult to provide future guidance given the unprecedented nature of the environment.
This environment forces one and all to relook at their business model, cost structures and all discretionary expenses.
Commentators are guilty of pronouncing the death of various business models and lifestyles, but we would like to believe that we are going through short-term stress and things will hopefully normalise in the next few months.
Q. Which sectors are likely to turn out to be leaders and laggards of the next bull run?
A. We believe that, given that low penetration is a theme across many industries in India, demand is likely to make a comeback once the pandemic is controlled and there is greater stability in the financial market(s) and in the economic environment.
However, this pandemic will force weaker businesses to either change the business model or perish. Consolidation will be a theme and the loss-making unicorns and businesses with high fixed cost structure will be the laggards while companies with strong balance sheets and free cash flow will be the leaders in the next bull cycle across sectors.
We are sector agnostic and believe in backing companies rather than sectors and have our own identified set of potential future winners across market capitalisation.
Q. IMF suggests that we could see the Great Depression 2.0. What is the kind of impact that would have on the markets and the economy? And, it would also mean that what investors lost in the market mayhem might just be a trailer?
A. As an economy, we have gone into the crisis with a weak set of data. Also, while we have enforced strict lockdown but our ability to fiscally stimulate economy seems to be limited.
Our banking system is just recovering from a prolonged period of high NPAs. Keeping all this in mind recovery may be delayed and slow. There is a chance of a stop-start kind of phenomenon as the risk that the virus may keep coming back is only eliminated once there is a vaccine.
On the positive side, our stability indicators like CAD and inflation will look better. This may allow the RBI to pursue aggressive monetary easing.
The honest admission is that no one can predict market levels. It is quite possible that we may retest the lows before the market goes higher. The demand destruction has to end and stability in terms of getting the virus controlled has to come through before we can consider bringing growth back on the table.
We remain constructive on equities given the recent correction and would encourage investors to buy-in a staggered manner over the next few months.
Q. So, if we are in a Great Depression-like situation, what is the kind of portfolio that one should work with? Is time to go underweight on equities to conserve capital? But, at the same time use the capital; reserved for equities to get into quality stocks?
A. We are amid the crisis and during this period we might make a mistake if we start comparing with past panic periods including 1929. At this point, we do not know whether it is like 1907, 1913, 1929, 1945, 1987 or 2009.
This narrative will develop once we are through this crisis. We should not forget; the 1929 crisis was very acute, probably because central bankers failed to provide liquidity.
Today that is not the case, US FED has provided liquidity to the market in the last 25 days equivalent to 18 months of liquidity in 2009. So we should not ignore the aspect of monetary and fiscal intervention done by all countries.
We should acknowledge that we are in a period of radical uncertainty. Hence, as a rule, one should raise cash level to be ready with any contingency as well as opportunity.
Once you have a cushion of this liquidity stick to your Investment Framework and Process. By virtue of fall in equity prices the last couple of months most of the portfolios have become underweight on equities.
In that case, we suggest correcting this gap by rebalancing equity from debt capital with three-month staggered investments.
Q. With the economy heading towards near zero levels — do you think it would make sense to avoid small and midcaps which usually get a booster from the economic activity?
A. Along with growth shock, there is another challenge for small and midcaps equity. Credits are getting re-priced in this environment and it will also impact these companies’ ability to get funding.
Unavailability of credit and uncertain growth environment will create too much risk for investment at this point in time. Hence, we suggest being cautious before investing in mid and smallcap businesses.
Q. Your two mantras for investors which could help them get through the COVID-19 storm?
A. Two advice which may add immense value to your Investment is — stick to your predefined process and avoid any temptation to do something different.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.