‘Pharma, gold loan firms among 6 themes where there is money making opportunity’

The bounce reflects enthusiasm for the fact that we are unlocking the shutdown and that may help economic activity to restart. We are a long way from being out of the woods as of now.

Q) Was this the shortest bear market of all time?

A) As stated earlier, too early to call the end of the bear market. It is pertinent to note that a dozen stocks are driving Nifty performance and they are not fully representative of the Indian economy.

The financials that make up 40 percent of the index are in moratorium mode and we will only see true portfolio performance perhaps in the October through December quarter. Also, the sub juice matter of interest reversal/waiver during the moratorium period may keep valuations in check.
Q) Which stocks and sectors are likely to benefit the most as and when lockdown opens?

A) The market is sentiment driven in the short-term and earnings/fundamental driven in the long run. We have to keep in mind that the Indian economy was slowing down getting into the pandemic and the pandemic has made the situation worse as compared with other economies.

Our preference while being sector agnostic continues to focus on unlevered companies with a strong balance sheet where we see a large addressable opportunity.

We see opportunities with select consumer staples, large IT players, the strongest banks, life insurance companies, and a few names in the pharma sector including the MNC’s and gold loan companies.

Q) What is your call on financials, metals, auto, and realty sector? Each one of them going through their own sector-specific troubles - how should investors play them?

A) We do not believe that there is a single playbook and one needs to evaluate sector and stock-specific strategies.

As far as financials are concerned, the best-capitalised banks and NBFC with strong parentage and good liability franchises are preferred plays. We also like gold loan companies and life insurance as an opportunity in India.

Auto was slowing down pre-COVID and we need to wait for demand to come back given the discretionary nature of the product. Our preference here is again names like Bajaj Auto that have strong balance sheets and export business to support the domestic volumes.

We feel that the share price of Maruti needs to reflect the reality that a company that has an installed capacity of 2 million vehicles per annum has only sold 16,000 vehicles in the first two months of this financial year. We would recommend buying the stock at lower price points.

As far as real estate is concerned, the lack of meaningful response from the administration is perplexing given the multiplier effect that the sector has on cement, steel, paint, and other sectors.

We remain on the sidelines as far as this sector is concerned given issues with leverage, policy uncertainty and lack of meaningful pick-up in demand

Q) Monsoon got off to a stormy start – dow do you see it panning out? Stocks & sectors that will benefit the most?

A) Right from consumer staples to two-wheelers to tractors to Agri commodity-focused companies -- companies depend on a healthy monsoon from a rural demand standpoint.

As per estimates, the monsoon is likely to be normal and we should look at companies like Mahindra and Mahindra in addition to our focus list

Q) FIIs are slowly making their way back into the Indian markets. After a strong May, it looks like FIIs will close the month in net inflows. What does it suggest about the future trend about the market?

A) FII’s had sold off in March and it is early to determine whether the trend is changing. The country does need FII flows to support local risk capital.

FII’s will come to India since India continues to show possibilities of growth given low penetration levels. To be honest, money has come in the past few years without any meaningful earnings growth - so if we can get back to the 2002-2007 era where Indian companies can grow earnings, we can expect a windfall from an FII and FDI standpoint.

Q) The foremost emotion of investors right now is to preserve capital especially at a time when the demand has contracted, and salaried class is under the stress of job losses. What should be the strategy of investors?

A) In good times as well as bad items, the friend of the investor is asset allocation. Have a balanced portfolio between debt and equity, keep enough cash in the bank for four to six months of expense, ensure that the underlying investments are liquid and only invest in instruments that you understand.

Q) Life after 10,000 on Nifty will change – do you think that increased optimism and liquidity will also lead to a sharp rise in the small & midcaps?

A) A rising tide lifts many boats. First, we have to see how sustainable is this change in sentiment from an India perspective?

We continue to show low rates of growth, large potential unemployment, disruption due to COVID-19, and challenges with the banking sector in terms of risk-off sentiment.

We don’t think that one should speak in general about the mid and smallcap. A company with an addressable opportunity can grow into a good business as long as it conducts itself with the highest standards of governance, has good quality management, and is able to generate growth without taking any leverage.

Investors should look out for such opportunities irrespective of the market cap of the company.

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.