'Supportive monetary policy, fiscal accommodation to support corporate earnings in years to come; see selective opportunities in pharma'

Tridib Pathak, Portfolio Manager, Avendus Olivo PMS is positive on large private banking space, financial services, telecom, speciality chemicals, pharmaceuticals, cement and the organised foods sector.

In an interview with Moneycontrol's Nishant Kumar, Pathak pointed out that as long as disruptions are short-lived and recovery of activity picks up fast, he is not much worried about a sustaining market impact.

Edited excerpts:

A) We do not have the ability to gauge the possibility of a third wave.

There has been a sea change in market behaviour in the second wave, compared to the first wave. Last year, we were dealing with an ‘unknown, unknown'. This year, the second wave has been a ‘known, unknown’.

Also, while COVID-19 poses uncertainties, vaccinations are a reality. It is not surprising to see the overall resilience of the market in the second wave.

While health crises are painful and socially disturbing, the markets are more focused on business activity and its resultant impact on share values.

Short periods of disruption to business activity should agreeably not have much impact on business values.

The strong rebound of business activity last year from September onwards shows that.

Our case study shows that the impact of the loss of full three months of cashflows (very conservative estimate) and delay in recovery by six months (again a very conservative estimate) leads to a maximum 9-14 percent destruction in the value of a business.

So long as disruptions are short-lived and recovery of activity picks up fast, we are not much worried about a sustaining market impact.

A) Our whole focus is identifying quality businesses which we believe have capital efficiency, sustainable growth and are available at attractive valuations considering the underlying business.

We do not like to overpay for businesses. At the same time, we also do not like to go down the quality curve.

Supportive monetary policy, fiscal accommodation and benefits from reforms undertaken earlier, will allow a strong corporate earnings growth cycle in the next few years.

This is unlike the pre-COVID years, when India saw an earnings growth recession, allowing for herding into defensives.

We do find a number of attractive opportunities in businesses linked to the resumption of economic activity and benefiting from the upcoming strong earnings growth cycle over the next few years.

A) As long-term investors, we would rather not focus on near term quarterly earnings, which understandably may be impacted. We do expect normalisation by the second quarter.

A) We continue to find opportunities in sectors and businesses which are benefiting from the acceleration of a number of trends such as the mainstreaming of digitalisation, increased focus on health and hygiene and China+1 (China and beyond for manufacturing perspective).

Overall, we like select businesses in large private banking space, financial services, telecom, speciality chemicals, pharmaceuticals, cement and the consumption space, especially the organised foods sector.

Having said this, we would like to clarify that we are bottom stock selectors and are generally sector agnostic.

A) We do find selective opportunities in this sector, where valuations remain attractive and transformation of the business is underway.

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