Our preferred sectors are the ones that are least impacted by the COVID pandemic and can lead the upside going forward, says Deepak Jasani of HDFC Securities.
Our preferred sectors for the next few quarters are telecom, IT, chemicals, pharma, insurance, large banks, cement, rural-focused sectors, and gas, Deepak Jasani, Head of Retail Research, HDFC Securities, said in an interview with Moneycontrol’s Kshitij Anand.
edited excerpts:Q) What are your views on the outcome of the GST meeting?
A) The GST meeting did not confirm any reduction in GST for 2 wheelers. To that extent, it disappointed expectations.
Also, the centre made it clear that it had no obligation to cover a deficit in GST payment to states if there was a shortfall in the tax collections.
The compensation gap which has arisen this year (expected to be Rs 2.35 lakh crore), is due to COVID-19 as well. The shortfall in compensation is due to the implementation of GST and has been estimated to be Rs 97,000 crore.
In the first option offered at the GST meeting, states can borrow Rs 97,000 crore, which was this fiscal’s revenue shortfall that can be attributed to the implementation of GST in 2017, from RBI.
The second option is to let states borrow from RBI the entire Rs 2.35 trillion, which states said they need to be paid as compensation in FY21. This includes revenue lost due to the pandemic and the national lockdown.
The auto sector could get a bit disappointed as the cut in GST rates for 2 wheelers did not materialise and the cess levied on purchases of items such as cars, aerated drinks, and tobacco will be extended beyond 2022.
Markets are currently in a relatively untroubled mood as far as the macro situation is concerned. At the back of the mind, the impact of these options on the long term interest rates trajectory will be debated. The steepness of the yield curve may not reduce in a hurry and banks will not be happy about that.
Q) Do you think that the worst in terms of GDP data is over?
A) The June quarter GDP number came in worse than most estimates at. Widespread and repeated lockdowns have resulted in this sharp fall.
Construction contracting by 50.3 percent and trade, hotel, transport, and communication contracting by 47 percent are the two negative surprises.
Investments too contracted by 47.1 percent. Agriculture (up 3.4 percent), government consumption (up 16.4 percent) and positive net exports (4 percent of GDP in Q1 FY21 versus -4 percent in Q1 FY20) averted a much sharper plunge in growth.
The numbers being slightly worse than expected could impact the market sentiments mildly. The RBI also cannot do much beyond what it has already done.
The ball would now be in the court of the government to spur consumption by taking fiscal measures, where RBI may come in to help for smoothening the fund raise program.
The GDP numbers could upset the government’s fiscal math that may force major changes in the public finance estimates.
Now the focus will shift to September quarter. Going by the July Core Infra number of -9.6 percent, the September quarter may also record high single digit decline in GDP on a YoY basis.
Lack of demand due to a fall in employment and tendency to save more can be a larger concern in the rest of FY21. While the rural economy has offset the slowdown in urban areas in Q1 to some extent, rural recovery is unlikely to support such pace in subsequent quarters. One reason for this is that COVID-19 has started to penetrate rural areas at a fast pace since July.
India’s recovery path appears a long and hard one. A mix of monetary and fiscal measures to prop up the economy has fallen short so far. Some innovative thinking on the part of Govt/RBI and some good providence are required to turn the tide quickly.
Q) Broader markets are back in limelight after 2 years of underperformance. How should one play the theme – should one increase exposure via individual stocks or by mutual funds?
A) Mutual funds, barring a few good ones, on an overall basis have been disappointing due to underperformance..
Investors would have to develop stock selection skills and improve their emotional quotient if they want to reduce their dependence on mutual funds.
Also, performing well in one stretch of trended markets does not make great investors. Markets have their own cycles and performing well in all cycles is very challenging for investors.
Q) It looks like we are heading towards 12000 and then towards 12400 levels going by estimate of one of the brokerage house reports. The market is discounting a lot of things, but what could upset the appetite of bulls?
A) Among global cues, US-China trade tiffs, US Presidential election outcome, the timing of COVID vaccine discovery and its availability/cost, emerging situation in the Middle East following the UAE-Israel patch up, Inflation and interest rate trajectory in the developed economies, and the continuation or stoppage of easy monetary policy by Central banks will be keenly watched.
Domestically, if the lockdowns are not completely lifted in the next few weeks, if Rupee comes under pressure or interest rates keep rising, if monsoon in the last stage is not sufficient or evenly spread if FPI flows dry up due to any reason then bulls could get upset.
Q) Sectorally, which are the sectors that will produce leaders of tomorrow, and why?
A) Our preferred sectors for the next few quarters are telecom, IT, chemicals, pharma, insurance, large banks, cement, rural-focused sectors, and gas.
Our preferred sectors are the ones that are least impacted by the COVID pandemic and can lead the upside going forward.
Q) Are you also seeing a scenario where investors are selling funds and using the money to buy into stocks – is that rotation evident?
A) It is likely only on a small scale. The rookie or new traders could be doing that to raise money for their trade or margins.
As they make money in the initial few trades they would become overconfident on their abilities to ride the markets and redeem some more from mutual funds to bet more in equities or F&O markets.
This can go on till they burn their fingers or move aside their profits into other asset classes including mutual funds.
Q) What strategy should one follow on asset allocation? How much money should one be parking let’s say in overseas funds or stocks?
A) Asset allocation depends on your risk appetite, your financial goals, your current savings, your current age and expected growth in income.
The first priority is to build an emergency corpus for 6 months' expenses (including EMI) which should be invested in liquid funds.
For people who are young and growing in career, the next priority (if they already have a parental house) is to grow the savings through the equity route. Here SIP route is preferred and a large proportion of your savings can go into this.
The balance can go into mandated savings in debt and voluntary savings in debt and debt funds. For people who do not own a house, they should be saving for their down payment for the house.
Here the investment to build this corpus should be ideally 50:50 between equity and debt. Periodical review of asset allocation is essential to restore the original allocation and make changes that may be necessary due to changes in risk profile and/or income growth/degrowth and/or goals.
For HNIs, the facility of liberalised remittance scheme should be availed for portfolio diversification. Although, the recent high returns from overseas funds may not be repeated in future.
Overseas funds or stocks also offer other advantages including geographical diversification, currency hedge and exposure to high growth stocks or sectors that are not available in India.
For very active HNIs this proportion can go up to as much as 20-25 percent and for other HNIs, this proportion can be 5-10 percent.
Q) About 100-200 stocks hit a fresh 52-week high on a daily basis. What does history tell us when it comes to putting money in stocks with momentum or in the stocks that are hitting 52-week lows?
A) A lot of traders/investors follow this system of investing in stocks that touch 52-week highs. This is because they are betting on a company where the insiders or regular investors are bullish due to a reason which may or may not be known publicly.
However, one has to be careful in not latching on to penny stocks or stocks with dubious business models or promoters.
Buying a stock that has hit 52-week low is like catching a falling knife. One does not know as to how much more the stock can fall.
Contrarians like to do this by betting that the stock has done its fall and now can give a good upward correction. However, to succeed in this one needs to be in the know of the happenings in the company and its stock ownership changes thoroughly.Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.