The last six months were like a “Twenty20” match where market stunned most investors with its speed of fall and recovery thereafter, Vinit Sambre, Head – Equities, DSP Investment Managers, said in an interview with Moneycontrol’s Kshitij Anand.
edited excerpts:
Q) IMF global outlook is slightly worrying and then there are the rising cases of COVID-19; do you think these factors would cap the upside for Indian markets?
A) Frankly, market predictions have lost its meaning due to its weak correlation with economic reality. Much of the market moves seem to be driven by the liquidity factor which is favourable at the moment.
It’s a bit perplexing to see the current euphoria given the heightened geopolitical and health risks.
We find ourselves incapable to predict whether the upside would be capped given the gush of liquidity globally. As they say “markets can remain irrational for longer than you can remain solvent.”
However, our focus has been on watching fundamental trends like the financial impact of the pandemic on different companies, signals on-demand trend, changes in habits which are likely to lead to structural changes and the like, and using these trends to align our portfolios with our long-term and medium-term objectives.
Q) How would you describe the last six months of 2020 in one word? And why?
A) In one word, I would say it was like playing a “Twenty20” match where the market stunned most investors with its speed of fall and recovery thereafter. These swift moves hardly provided any time for investors to think and react.
Q) Where do you see markets, earnings heading in the next six months?
A) Earnings have seen a series of downgrades ever since the lockdown has been announced. Economically, important districts are still facing restrictions on the movement of goods and services which is hurting the demand environment.
Further, the availability of credit has become a challenge, further worsening the situation. The impact of job losses and salary cuts will be felt on the demand side for some more time.
We feel the earnings situation could only improve once we are able to control the infection rate and open up the economy. Acceleration in the pace of growth can be achieved if the government is able to provide more stimulus going forward.
Q) In the first six months of 2020 we saw plenty of buybacks as well as companies announcing delisting. What is the rationale behind it, and do you think this trend will continue?
A) Buybacks as an option have been preferred for some time due to the tax efficiency it offered. However, with the recent changes in tax rules, it has to be seen what route the companies adopt in the future.
There have been very few delisting announcements and we would not like to read much into the same.
Q) Which sectors are likely to turn out to be leaders and laggards in the next six months?
A) Our cautious view on the markets makes us believe that sectors such as healthcare, telecom, insurance, IT, and consumer staples are resilient in the current environment and could outperform sectors such as banking, infrastructure, engineering, and metals, among others.
Q) Many new investors joined the party on D-Street in the first six months to start their journey of becoming a millionaire if they remain invested for the long term. But, as we head into the next six months – which are the survival tips you would like to share with them to keep them afloat amid volatility?
A) Be Patient. I firmly believe in the equity market’s potential to generate wealth over the long term but the journey is never smooth and proves rewarding to investors with the right temperament.
The common error which investors commit is that they start this journey during the bull phase of the market as the risks seem low and their confidence gets shaken when they see sharp drawdowns taking place which makes them quit the markets at the wrong time.
Equity investment is a game of patience and sometimes may take longer than anticipated to yield results. The only survival tip I can suggest is to remain disciplined about investing in good businesses and stop watching the daily price ticker.
Q) Gold hit a fresh record high in the week gone by. Do you think it could again outperform equities in 2020? What is your outlook on the yellow metal for the next six-12 months' perspective?
A) We are going through a period of uncertainty and heightened geopolitical risk. Generally, gold as an asset class tends to do well in such an environment.
Added to that is the fact that the cost of owning Gold is almost nothing given the abysmally low-interest-rate environment. We do not see this situation changing soon and would hold a positive view on Gold.
Q) Any stock recommendations (value picks) with a 1-year perspective?
A) I would not be able to talk about stocks but would advise investors to avoid investing with a 1-year perspective as it is too short a time period for equity investment. One needs to look at equity as a permanent asset class.
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.
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