Good management and companies are usually driven more by the strategic view of their businesses and what M&A makes sense rather than fluctuation in valuations of their targets. The present situation and the stress, however, can open up more M&A discussions than usual, Rahul Singh, CIO-Equities, Tata Mutual Fund said in an interview to Moneycontrol's Sunil Shankar Matkar.
Q) Crude oil has fallen more than 60 percent from its January 2020 high. But do you feel the fall is favourable to India given the likely low tax collection and COVID-19 led lockdown?
A) The decline of oil prices is good for India in the long. However, it is also an indicator of fear of a steep global slowdown as well as the risk-off sentiment.
To that extent, the near term impact of low crude prices will not be positive. But it allows the government to have greater elbow room in the fiscal going ahead. In addition, the external account remains in balance which allows INR to maintain stability despite FPI outflows.
Q) Is it the right time for fundamentally strong and cash-rich companies to buy small-midcap (even big) quality companies which are fed up with interest burden/pledged shares or any reason, as stock prices butchered by COVID-19?
A) Good management and companies are usually driven more by the strategic view of their businesses and what M&A makes sense rather than fluctuation in valuations of their targets. The present situation and the stress, however, can open up more M&A discussions than usual.
Q: What sectors are you looking at?
A) Given the structural changes that are likely in the post-COVID-19 world, sectors which play a role in the new way of living are interesting to explore. In that context, telecom, pharma and healthcare, insurance and dividend yield plays can do better.
Q) What could be the impact of COVID-19 on companies' earnings in Q4FY20 and Q1FY21? Will FY21 be a bad year for companies in terms of earnings or do you see recovery in 2HFY21?
A) It really depends on the length and spread of the infection period so it is difficult to predict at least at this stage. The impact would be less on Q4FY20 but next quarter can be tough.
Q) Report suggested that lockdown is expected to create a big problem for banking & financials sector in terms of NPAs. What are your thoughts?
A) RBI's steps to give forbearance for 3 months is a good step but if the slowdown is longer than that, the NPAs can go up.
Q) Gold, Oil, equities and other asset classes have been falling – what does it indicate or how should investors decode this?
A) There have been forced selling in Gold too which historically has been an anti-dote for recessionary periods. Crude has declined because of a simultaneous supply as well as demand shock. Revival in crude appears less likely unless the OPEC restarts its talks.
Q: What are you advising clients right now given the turmoil not only in equities but also in other asset class? Should one rebalance his/her portfolio or make a fresh portfolio given the value in every asset class?
A) Investors should be disciplined during this period as the overall weak phase might continue given the nature of the uncertainty, both global and domestic. We advise additional allocations to equity only on further declines and maintain a balanced approach a between equities, debt and gold at this time
Q) FIIs sold more than $9 billion worth of shares from February 24 and was the major reason for sell-off in the market. Is it a cause of worry?
A) We believe that there is valuation support emerging for certain segments of the market. But global sentiments will be an important driver of the short term market movements in addition to the news flow on virus spread domestically.
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