Investors should stick to large-cap stocks which are most liquid, since there is a real risk that many mid and small-cap companies could become illiquid in the coming months.
Investors should rebalance their asset allocation. Wherever the equity component has gone down due to the fall in the market, investors should increase their equity exposure while maintaining a balanced allocation, and there can be a slight tilt to largecaps at this time, Sameer Kaul, MD & CEO, Trustplutus, said in an interview with Moneycontrol’s Kshitij Anand.
Q) What is your take on the market action amid heavy selling by FIIs? What is causing the panic on D-Street?
A) Broadly speaking selling had come from three sources - FIIs, margin unwinding by brokers and heavy short selling by hedge funds and traders.
We are seeing that the selling pressure by FIIs is abating and margin unwinding by brokers has also reduced substantially.
Therefore, we do not expect such sharp movements on a regular basis going forward. However, the market structure is weak, with share prices falling on modest volumes.
Buying activity by the DII and HNI segment which was till now absorbing FII sale volumes has also moderated.Q) After registering a series on series fall of more than 25 percent in March, what do you expect from April series? Any stocks which investors should watch/avoid? Also, have we made a bottom around 7,511?
A) Well, past trends indicate that markets usually retrace some of their losses in the immediate next month following an abnormal fall (like in October/ November 2008). That does give us hope for a positive April series.
However the lockdown will continue till April 15, and the situation is far from normal. At this point, investors should stick to largecap stocks which are most liquid, since there is a real risk that many mid and smallcap companies could become illiquid in the coming months. Liquidity at the bottom of the markets is always at a premium.
Currently, the bottom is placed at around 7,500 on the Nifty. At 7,500 selling abated and there was some buying witnessed across the board. However, markets have the tendency to retest the previous lows which investors should be careful about.Q) What is your take on the government and RBI package?
A) The packages announced by the RBI and the government are welcome and much appreciated by the markets. The government has taken steps to protect those at risk and most impacted.
The RBI has done more than what was expected. The government measures may have to be supplemented if the lockdown does not end by the deadline announced or if contagion spreads.
The RBI may also have to take further action specifically on the liquidity front.
Given that growth rates and inflation are likely to collapse, further interest rate cuts are also possible.
The most important policy actions have to happen after the lockdown ends led by massive government spending and a higher fiscal deficit.Q) What is the checklist which investors should follow in a bearish scenario?
A) The saying goes “Prepare and not Predict”. One of the best ways to behave rationally in a challenging time is to pre-commit to your strategy.
We as human beings are bad emotional time travellers, hence, it is always better to have a process-driven decision-making approach that includes a well-articulated Investment Policy Statement.
Once an investor adopts this process his or her approach should be the same in a bullish scenario or a bearish scenario.
Hence, while the checklist should be a logical output of an individual’s Investment Policy Statement, here are some general pointers to a checklist :
a) Investors should be conscious of facts that one should avoid.
b) Investors should not respond to prices & news flow and take a short term decision.
c) Investors should accept the fact that a lot of things we do not know and one should not invest in something that one does not understand.
d) Investors should not change their Investment framework mid-way.Relevant Question to Ask:
a) Does your current portfolio represent changed facts and reality and is there a course correction required?
b) Apart from asset allocation, the selection of investment should be scrutinized to reflect a new paradigm.
c) Do you understand both qualitative and quantitative risks on the investment opportunity?
d) Does the investment opportunity provide liquidity at a short notice?
e) What is your time preference for the said investment?
Always remember two things: “This too shall pass “ and “Best of the opportunities come in times of crisis, so stay vigilant”Q) Should investors rejig their asset allocation in these troubled times? If yes, what do you recommend?
A) The essence of asset allocation is re-balancing.
We would suggest the following thing(s)
a) Plan rebalancing of your asset allocation on March 31.
b) Don’t rush – Take another 6 months to get to the ideal asset allocation. A lot of opportunities may emerge by then.
c) Plug the obvious gaps - We have found that most of the portfolios do not have the desired allocation to gold and international equities.
d) Retain liquidity in the portfolio.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.