'The worst part about 2020 is – it's not over yet! Picture abhi baaki hai'

A) Since the March-end, many central banks across the world have resorted to large stimulus and printing of money. Such large easing and printing of money have led to a surge of liquidity and money was trying to find its way into various asset classes including emerging markets like India.

The end of lockdown in June, helped the Indian markets to join the global rally driven by liquidity. The Indian economy was already on a downward spiral before the COVID outbreak.

With an extended lockdown and the after-effects, outlook on both the economy and earnings continue to be weak in the medium term.

Going forward, one needs to watch as to how the recovery in economy shapes up, how the geopolitics evolve, and also how the COVID-situation/global events unfold. We remain cautious on the markets.

Q) How would you describe the last six months of 2020 in one word? And why?  

A) CRAZY. The year has inflicted an unprecedented impact on the financial markets and mankind as a whole. You name it- the large-scale spread of COVID pandemic, the bush-fires of Australia, US-Iran near-war situation, UK leaving the EU, earthquakes, cyclones, deaths of celebrities, mass unrest and revolts, India-China faceoff, the stock market crash and sharp recovery, sub-zero crude prices, record gold prices, near-zero interest rates, large-scale monetary expansion by central banks, unusual fiscal measures, the helplessness of advance medical sciences, the death and misery of people, the scale at which people have been locked down in their homes.

The year 2020, it seems, will have a far-reaching impact on the minds of people, government and businesses. And the worst part is- its not over yet! Picture abhi baaki hai…

Q) Where do you see markets, earnings heading in the next six months? Your outlook for the markets.

A) The Indian economy was already on a downward spiral before the COVID outbreak. With an extended lockdown and rising cases, the revival of demand and issues with MSE/MSME and banks will take longer to resolve.

Hence, we are not very optimistic on FY21 earnings. The expectations of a normal monsoon, the resilience of rural/agri economy, and sharp bounce in tier 3 & 4 cities should help in some recovery in the second half.

However, if all goes well, FY22 and FY23 may surprise many analysts as we expect all the latent demand to bunch-up as also the revival of capex cycle in the backdrop of low-interest rates and cheap capital.

As indicated above, in the short-term, one needs to watch as to how the recovery in economy shapes up, how the geopolitics evolve, and also how the COVID-situation/global events and liquidity unfolds.

We tend to be more positive for medium-term prospects for India due to 1) sustained lower crude prices, 2) cheap global capital (-ve interest rates in most economies), 3) Lower domestic interest rates, 4) bunching-up of latent demand and revival of CAPEX cycle, 5) possibility of the emergence of India as an alternative to china once the COVID issue settles, 6) sustained global liquidity due to unlimited QE by FED and other central bankers.

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 would extend in the next six months as well?
A) In the month of March, there was a sharp fall in prices to the tune of 30-35%. Mid-caps and small-caps have been falling since 2018 and some were down almost 60-80% from their peaks.

Corporates with the balance-sheet strength and cash-flows used this opportunity to buy-back their shares, while a few announced delisting. Generally, these are good signs and indicate the depressed value and promoter confidence.

Q) Which sectors are likely to turn out to be leaders and laggards in the next six months?

A) In the short to medium term sectors/stocks which may be lesser impacted by the COVID situation and maybe the first ones to bounce-back will outperform.

Our preferred sectors are IT, Telecom, Pharma, Agri-related sectors/ companies, two-wheelers, and metals. Hotel, tourism, Banks, NBFC, capital goods, and big-ticket consumer discretionary segment may lag behind.

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) The investors should first realize that all asset classes have their cycles. It is important to understand what phase of a cycle the asset class is into and also understand the risk/return/volatility matrix of that asset class.