Investors should avoid travel-related bets like Aviation, Casinos, Hotels, and Resorts, all of which will continue to be severely hit. Steer clear of stocks linked to high-end consumption, Real estate, and Oil.
History is replete with instances where even an early buyer, en-route a downward market trajectory, ends up making significant money in a three to five-year time frame, Amar Ambani, Senior President and Head of Research – Institutional Equities, YES Securities, said in an interview with Moneycontrol’s Kshitij Anand.Edited excerpt:
Q) IMF suggests that we could see the Great Depression 2.0. What is kind of impact would that have on markets and the economy?
A) To put it in perspective, The Great Depression of 1929 had a massive fallout, with US equities crashing 89 percent from their respective highs, sinking to their lowest depths in almost a three-year span.
Frankly, no one can say for sure, whether we emerge steadily after this stumble or fall to our knees. We’re talking about two distinct eras.
Being an eternal optimist, I would not foresee today’s situation as a doorway to doomsday. I would hope things will work out eventually.
Monetary and fiscal tools are far more potent today, giving us a better arsenal to fight the ongoing and ensuing financial crisis.
With regard to India specifically, we also have the comfort of an inward-facing economy. Yes, exports will suffer, but then imports will fall even more.
Having said that, even if it doesn’t turn out to be a Great Depression 2.0, does not mean we escape further downsides. If the historical study of market cycles, chart strength and fundamental parameters like Mcap-to-GDP are any guide, more slides cannot be ruled out.
If the virus continues to play havoc or resurfaces in winter, the Nifty may touch 6,500. Conversely, if we control the pandemic and economic shocks in reasonably good time, we could see better days in 2021 after a bottoming out in 2020.Q) March quarter earnings are likely to stay muted but management commentary will be eyed. What are your expectations from India Inc.?
A) It’s too early for companies to give any guidance whatsoever. Precisely why Wipro and Infosys haven’t. With COVID-19 yet unresolved, bringing back the labour force on the shop floors will be a huge challenge, so would be availing of credit lines.
Slowing consumption demand would be a chronic headache for most economies. Even India is likely to grow only 0-1 percent in FY21. We need concrete steps from India Inc. to ensure survival, ahead of sustainability.
Charlie Munger of Berkshire mentioned in his recent interview that he finds managements to have frozen. This crisis will separate the men from the boys. Social and governance parameters of corporates will also be out to the test.Q) So if we are in a Great Depression-like situation, what is the kind of portfolio that one should work with?
A) We are essentially talking of a hypothetical scenario here. One thing is crystal clear to me though: Selling stocks now would amount to sacrilege.
History is replete with instances where even an early buyer, en-route a downward market trajectory, ends up making significant money in a three to five-year time frame.
The first thing to do is to keep aside an emergency fund for at least six months. Post setting aside the money, look to buy quality stocks with strong balance sheets, comfortable cash position and those likely to emerge stronger to gain more share at the expense of weak hands.
The best part is that you can stagger your purchase in a volatile year and buy what you want and at your price point. This is also a great time to start a SIP.Q) With the economy heading towards near Zero levels – do you think it would make sense to avoid small & midcaps?
A) In general, yes. The credit availability invariably dries up faster for the long tail. But at the same time, there are certain midcap leaders in their respective sub-sectors, armed with healthy balance sheets.
If you believe the industry prospects are bright and the management is dynamic, there’s no reason why you should not place bets here.Q) Your two mantras for investors which could help them get through the COVID-19 storm?
A) One, stay safe and live to fight another day! Ensure adequate liquidity such that you aren’t forced to sell ad hoc.
Two, remember that ‘this too shall pass’ for sure. Don’t lose focus, keep analysing the situation with a forward-looking approach and upgrade your skills and competencies to create a more potent and purposeful version 2.0 of your value prop.Q) Which sectors are likely to turn out to be leaders and laggards of the next bull run?
A) The situation is yet evolving. Though it’s too early to make predictions, it would be prudent to employ the policy of elimination as a good start point. Avoid travel-related bets like Aviation, Amusement parks, Casinos, Hotels, and Resorts, all of which will continue to be severely hit. Steer clear of stocks linked to high-end consumption. Avoid Real estate and Oil.
Financials: Credit is the backbone of any economy and it’s still at a nascent stage in India’s case. Our household debt to GDP is merely 12% and private credit is only 50%. I can’t imagine a bull run without participation from the financial sector.
Telecom: Telecom stocks possibly, which haven’t rewarded investors in the last decade and past issues plaguing the sector are widely known. Now the consolidation is done, major CAPEX is behind these players, ARPUs have started inching upwards, so has data usage, helped even more by the COVID-19 crisis.
Healthcare: Going forward, I believe people will be more health and hygiene conscious in every way – whether it is ordering food from reliable chains, working out regularly and buying adequate health insurance.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.