Long-term investors should use the market weakness and build positions in undervalued stocks
The macro-economic effects of COVID-19 and its effects consequently on portfolio management are far-reaching. Due to the expected hit on global demand, crude oil is likely to slump further.
As a result, any company with crude oil linkages should benefit from margin compression provided they are at least able to just maintain top-lines.
Other sectors such as tyre, FMCG and downstream OMC companies stand to benefit from improved FCFs thanks to potential margin uptick.
Home Décor companies which used to face competition from imports from China (Tyres as well here) would also likely benefit from supply disruptions there.
In the long run, should COVID-19 pandemic prevail, stocks with safe-haven characteristics would be the go-to avenues?
IT Sector (preferably domestic-focused as most have relatively high foreign exposure that is linked to current muted demand), staples (except where there is no element of meat consumption), utilities and high dividend yield stocks can be attractive candidates.
In terms of direct risk, pharma companies that are not vertically (and backwardly) integrated could be at risk. Companies with significant exposure to China (such as certain Indian auto companies playing globally), and Commodity/Metal players could see some dent.
Consumer Electronics manufacturers that are reliant on China for providing them the basic components are another at-risk segment as are travel and related sectors.
At times like these, investors still having some dry powder left should focus on staggered and selective deployments with a strict and disciplined hawk-eye focus on both prices and valuations as this stands the test of time.
The current valuations looking at the past few years are certainly attractive, but correctly ascertaining the current true potency of the virus and the speed of its antigenic shift (mutation) vs. the speed with which the human immune system evolves to combat it remains an unknown.
Long-term investors should use the market weakness and build positions in undervalued stocks. Central banks have sprung to action with innovative methods of providing liquidity.
In the long run, equity markets should recover as global supply chains recover and demand sentiment picks up.
(The author is CIO, Validus Wealth)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.
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