A fall in the markets should not lead to pessimism about the future, on the contrary, it should be seen as an opportunity to buy the markets and invest for the next five years or more.
A fall in the markets should not lead to pessimism, it should be seen as an opportunity to buy and invest for the next five years or more, Dr Joseph Thomas, Head of Research, Emkay Wealth Management, said in an interview to Moneycontrol’s Kshitij Anand.
A: The recent events relating to corporate governance and reliability have triggered this situation, which called into question, or rather, cast a shadow on the accounting and audit processes of these companies.
There is no reason to believe that this may have any adverse impact on the markets, on the contrary, it is good for the markets unless you have a feeling that some investigations would bring out more of what that is brushed under the carpet.
This is a matter which borders on legalities, and therefore, it is better not to form any views on this matter.Q: What do you make of the earnings season ? What were hits and the misses?
A: There have been no major surprises from the earnings declared so far, either on the positive or the negative side. There is an overall slowdown seen in the earnings, and since the past few quarters, there are no indications of any recovery from the macroeconomic data as well, which largely kept the market expectations at bay.
The major risk factor on this front comes from the earnings downgrades. The recent fall in markets have brought the market valuations border-level attractive, but the earning downgrades coupled with the economic slowdown can again hit investor sentiment as, despite the absolute fall at an index level, markets may continue to appear slightly overvalued.Q) What do you make of the auto numbers for July?
A) The auto sale numbers continue to indicate further decline, as they remain depressed due to several factors like the high cost of acquiring and maintaining vehicles, the lack of pro-active financing facilities and the overall sluggishness in demand.
This is reflected in the Nifty Auto which has moved down from 8,029 at the beginning of July to 6,763 at the end of the month. A glance at the levels on major companies in the space like Maruti and M&M testifies to the state of affairs.
The sector may need to drift lower before it could anchor itself to stability, and this is something that will be peculiar to this sector, mainly due to the normal factors as much as some of the structural challenges the sector is facing.Q: How is August likely to pan out for investors? And what are the important events to watch out for during the month?
A: The month of August has some crucial events happening like the Fed policy, the RBI policy, details of the no-deal Brexit, the details of the progress in the US-China trade negotiation, etc.
As far as domestic markets go, being at the threshold of festival season, we may finally see some consolidation, after some more downside, as the indexes would start giving the first indications of having become relatively cheaper.Q: Earnings have given little reason to cheer, the economy is showing signs of a slowdown, and corporate governance issues keep cropping up. The most important question which everyone is asking is when will it bottom out?
A: It is not that what is happening here is unique to the domestic market. Even other eastern market has seen quite a bit of downside and Europe, too, has been no exception.
The factors that have merged or emerging on the global scene are detrimental to the smooth flow of trade and business and overall growth. The tariff war between the US and China, the continuing aggressive posture of North Korea, the developments around Iran and the Strait of Hormuz and the agitation in Hong Kong are all the factors that are of consequence to markets around the world.
Coming to the domestic markets, it is a known fact that the economic growth is sluggish and there is distress in the agrarian economy and will take a few quarters before we could see some revival.
Unless there is revival happening, there would not be any pick up in corporate profitability and earnings. A combination of fiscal measures and monetary measures are required to achieve this.
The Budget has already initiated some measures to prop up aggregate demand and the monetary measures, especially rate action by the RBI, would also be a significant factor.
One redeeming feature is that the interbank market currently has a surplus of close to Rs 1 lakh crore and the announcements in relation to the guaranteed liquidity support to HFCs for six months are things that are of positive import to the markets.
These measures will help the economy bottom out fast and demand and profitability to gradually set in. Such revival usually takes anything from two to four quarters.
The Q2 GDP is expected to be close to 5.70-5.80 percent levels, that is close to or slightly lower than Q1 GDP. The IIP numbers and the core sector numbers etc. point towards such a prognosis on the overall growth momentum.Q: It looks like things are changing fast on Dalal Street. What do you advise investors to do? How can they decided what stocks to keep and which ones to sell out?
A: This is an ideal time for investors to review their portfolio and also to reflect, as a prelude to making fresh strides in the market place.
Portfolio review should be undertaken with the help of professionals who could be trusted for their objectivity. The review will highlight the stuff that should be got rid off and the stocks that could be held on to. It is another exercise to identify the new stocks to be acquired for the portfolio.
It is also advisable that the exposure to equity may be split into direct equity exposure as also to managed funds like mutual funds and portfolio management services. The key to bringing about the desired changes is a comprehensive review of the portfolio.Q: People have forgotten the ‘multibagger’ in 2019, which was a popular word a year ago. Given the extent of the fall, this might be the right time to look at stocks that could eventually turn out to be multibaggers when the tide reverses. Your views?
A: The fundamental sense of the concepts does not change with a fall in the markets but our perception of concepts may undergo changes from time to time, depending on the turn of events.
The same is true of multibaggers. Identifying multibaggers and investing in such stocks is a science and an art. So, they have a relevance irrespective of the times.
But, that does not mean that the stocks which are identified as multibaggers do not change with time. New entities rise and deliver investor expectations from time to time, and it is in fact, a good time to identify some stocks with strong fundamentals and which are trading at levels which provide good value.Q: Most of the marquee names are down in double digits. This could be looked like a golden year to invest and a black year for the portfolio. How can investors navigate through these lines of confusion?
A: Confusion arises due to lack of clarity on the future course of action. A fall in the markets should not lead to pessimism about the future, on the contrary, it should be seen as an opportunity to buy the markets and invest for the next five years or more.
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