'Patient investor with a 2-3 year time frame is bound to generate good returns'

Since equity markets tend to discount the next 2 years' earnings, recovery in the markets may be quicker. It is difficult to find a bottom and hence our advice is to invest systematically, Prasanna Pathak, Fund Manager – Equity of Taurus Mutual Fund, said in an interview with Moneycontrol’s Kshitij Anand.

Edited excerpt:Q) What would be your advice? Lump sum or staggered approach in direct equities or mutual funds? A) We do not expect a V-shaped recovery immediately. The markets/asset classes will consolidate for the next 5-6 months, and there will be a lot of volatility. The economy will take longer to recover. However, since equity markets tend to discount the next 2 years of earnings, recovery in the markets may be quicker. It is difficult to find a bottom and hence our advice is to invest systematically.

Smart investors have already increased the quantum of SIP’s to take advantage of the opportunity. Our advice is to use the next 3-6 months to invest in good stocks, mutual fund schemes, etc. A patient investor with a 2-3 year time horizon is bound to generate handsome returns by investing in these times of uncertainty and fear.

A) We do not know what exactly transpired at IndiaNivesh. However, we are given to understand that the issue was related to leverage, margin-funding, and inadequate risk management. Hence, to extrapolate an isolated casualty and arriving at a conclusion will be difficult.

Having said that, many businesses, especially in the SME/MSME segment, may go through a painful period in the next 3-6 months. This is where proactive measures from the government and relaxations /assistance by the regulator are necessary.

A) Gold/silver looks interesting as an asset class in the short to medium term. Also Pharma, diagnostic and FMCG companies catering to basic/essential needs of consumers can be looked at for short to medium-term horizon.

A) ESG framework is gaining popularity globally. Even SEBI has laid emphasis on the ESG framework for Mutual Funds. Global ESG ETF-Funds seems to have done better than the other diversified funds during the recent carnage.

The data is based on a smaller time-frame and hence needs to be looked into that perspective. ESG data/ framework related to supply-chain, health and safety management will gain prominence in equity strategies going ahead.

A) For Q4FY20, the actual impact of lockdown will be only for 10-12 days. However, the backdrop before the lock-down was also a slowing economy. Hence, we expect Q4FY20 to be muted.

Also, the revival of demand and issues with MSE/MSME and banks will take longer to resolve. Hence, we are not very optimistic about FY21 either.

However, FY22 and FY23 may surprise many analysts as we expect all the latent demand to bunch-up as also the revival of capex cycle in the backdrop of low-interest rates and cheap capital.

We are tending to be more positive for medium-term prospects for India due to 1) sustained lower crude prices, 2) cheap global capital (-ve interest rates in most economies), 3) Lower domestic interest rates, 4) possibility of the emergence of India as an alternative to china once the COVID issue settles, 5) unlimited QE by FED and other central bankers which will again restore global liquidity and part of it will flow to emerging markets again.

A) E-commerce, online shopping, etc. will gain enormously, especially in a country like India. Also, the acceptance of digital transformation / digital society will be more. Companies will have to re-assess their supply-chain, health, and safety management systems.Insurance will gain popularity. Even food habits and consumption will tend to shift to more branded/packaged food players. These will have far-reaching consequences on both the companies as well as investment strategies. In the short term, consumption demands to suffer, especially on the discretionary-side. Q) We have seen massive wealth erosion in most of the top-quality stocks in FY20, and as we step into FY21 some of those names could give multibagger returns if someone is investing in them now. Could you highlight 3-5 such stocks that hold that potential? A) Many companies with strong franchisees/moat, strong cash flows, and sustainable growth and visibility are available at a 40-50% discount to their peak. These offer value, according to us. On the other hand, there are also some good companies available with high dividend yield. In some cases, the market cap is close to the cash and quoted investments. Such opportunities, we tend to look at on a tactical basis. We cannot disclose individual names due to regulatory restrictions. But, broadly speaking, we tend to be positive on Pharma, diagnostic, FMCG and other consumer-facing companies. Q) Any particular sector(s) which investors should go underweight on atleast for the next year or in the current FY? A) We will be cautious about Banking, especially the NBFC space. Also, travel & tourism-related sectors, theatre/exhibition related sectors, commercial real estate, retail sectors and companies related to large-ticket size discretionary consumer spending will be affected in the short to medium term. These are the broader segments, however, one needs to evaluate each company on a case-by-case basis. 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.