Looking at the current scenario, we believe right asset allocation helped investors to stay calm during coronavirus meltdown and in uncertain times like the current one, where the volatility increases, and the swings are big, Prashanth Tapse, AVP Research at Mehta Equities, said in an interview to Moneycontrol's Sunil Shankar Matkar.
Q: The government announced Rs 20 lakh crore fiscal package, but the market has not taken it positively. Your thoughts.
Market reaction has a different voice to say after FM package announcements; the overall announced measures are below market expectations and this has led to profit booking attempts in the markets. Market was cautiously watching what is on the table to offer by the government to kick start the ailing economy and which would cheer only if there is something to drive growth in the economy, propel consumption or investment but it clearly shows Govt failed to cheer market momentum as they have focused more on supply and liquidity challenges rather pushing support in reviving demand.
We believe that it is equally very important for the government to bring some measures on demand-side policies which can hold back economy back on track.
Going forward, we believe equity markets will remain volatile on announcements and behave in tandem with global trends until the pandemic reaches a manageable level going forward. Equity markets environment is challenging and uncertainty is been played in markets, with difficulty of predicting what comes next a relief recovery or yet another volatile markets for short term.
So one should keep in mind that volatility is going to remain for some more time as we are not yet out of the corona woods. While post May 18 Lockdown 4.0 expected new guidelines could see relief to many more containment zones in the opening up of industries/manufacturing units.
Q: After analysing the measures by the government, which stocks are expected to benefit the most?
Looking at the so far announced measures govt has focused moreover giving liquidity boost to economy for businesses in the trying times. Likewise, we also believe that the implementation of these measures announced would be vital to see results of improved credit flow in near terms, if implemented we can see moderate demand and relief to few badly hit businesses.
Governments and policy makers across the world are doing their best with stimulus measures to help and manage the slowdown and get our economies back and running but this may take some time but certainly outcome would trigger markets globally.
While we at Mehta are advising Traders / Investors should focus on phase wise investing strategy, as it is very difficult to gauge when markets will stand at bottom levels but given the favourable risk-reward situation investors need to take a long term vision and keep on accumulating high quality stocks at every such declines.
Sectors benefitting from so far announced measures
Power distribution companies: Power distribution companies will get Rs 90,000 crore liquidity against receivables from state-owned Power Finance Corp. and Rural Electrification Corp. This will allow these discoms to pay dues to power producers
For NBFCs/HFCs/MF: Rs 30,000 crore special liquidity scheme for investing in investment grade debt paper of NBFCs, HFCs and MFIs. These NBFCs are those that are also funding MSMEs. These will be fully guaranteed by government of India. Rs 45,000 crore partial credit guarantee scheme 2.0 for NBFCs. The first 20% loss will be borne by the guarantor that is government of India.
Real Estate: Affordable Housing: Credit-linked subsidy scheme for middle income households in the income group Rs 6-18 lakh extended to March 2021. The CLSS scheme was operationalised from May 2017 and extended up to March, 2020. Now, it has been extended till March 2021. This will lead to investments of Rs 70,000 crore in housing and kick-start sectors like steel, cement and create jobs.
Food processing and allied activities – Infrastructure - Rs One lakh crore fund for strengthening the farm gate infrastructure like cold chains, post-harvest storage. Avanti Feeds, Apex Frozen and Waterbase would be in action after FM Nirmala Sitharaman’s announces third phase of package worth Rs 20,000 crore for fishermen through PM Matsya Sampada Yojana. Under the measure the relief of 3 month extension validity of sanitary import permits (SIPs) for import of shrimp broodstock and allowing rebooking of quarantine cubicles for cancelled consignments with no additional charges will be breathing support for the sector.
Q: What is the major reason for consistent fall in SBI and should one buy it at current levels?
We believe BFSI space has been badly hit by the COVID-19 crisis and expect high provisioning due to restructuring of loan tenures in today’s economic scenario. We can see direct impact for PSU lender sectors such as hospitality, tourism, trade, transportation, while MSMEs have been hit due to shortage of funds.
As per few reports the total exposure of banks to COVID-19 hit sectors is in excess of Rs 10-11 lakh crore. Due to the sectoral pressure, banks, especially PSU banks, may have to make additional provisioning thus impacting profitability in coming quarters.
Being India's largest lender State Bank of India growth would take a big hit and impact will be felt from Q1FY21 onwards as Q4FY20 has not seen the impact much as issues started cropping only a week ago seriously in India. The COVID-19 pandemic is barrelling into an economic crisis that may bring a fresh wave of non-performing assets (NPA) ?and this time it may see it from the small borrowers (MSME sector).
In the recent time SBI came under heavy selling pressure after rating agencies expect deterioration in banks' asset quality due to disruption in economic activity from the coronavirus outbreak. Growing solvency stress among non-bank financial institutions would increase risks to banks' asset quality because banks have large exposures to the sector. As we said earlier Investors should focus on phase wise investing strategies rather than pumping in full assuming and fearing of missing the future rallies.
We need to structurally allocate portfolio as well as diversify in multi sectors for better managing portfolio returns in current times. For investors who are already holding SBI, technically, Rs 151 acts as a major support level which should not be broken in the near term.
Q: Will you change your FY21/22 earnings estimates after these Rs 20 lakh crore measures?
Yes, earnings estimates for FY2021-22 will see sharp cuts due to extended lockdown’s and eventually resulting lower business activities owing to lower revenues and higher expenditure against the backdrop of COVID-19 pandemic. At the current business scenario, the projected net earnings of Nifty50 Index is expected to grow by lower single digits (4-7 percent) in FY2021E and higher teen percentage in FY22E. projections are based on considering lower uncertainty around the ‘reopening’ of the economy, lack of meaningful fiscal support from the government (so far) may create risk of further downgrades to FY2021 earnings estimates across sectors.
Q: Do you think the people could shift their asset allocation from physical assets (land, property, gold etc) to liquid and healthy assets?
Indians are different in investing culture when it comes to asset allocating. Indians love to own physical assets like land, property, gold etc and will continue to own in the same traditional way. Looking at current scenario we believe right asset allocation helps investors to stay calm during Coronavirus meltdown and in uncertain times like the current one, where the volatility increases, and the swings are large.
Today, undoubtedly gold is an attractive asset class, here we would like to advise investors to shift some of their liquid assets in dollars terms investment global and alternative gold bonds. If you are looking at an investment horizon of five to seven years, then gold bonds are better. They give you a two-and-quarter percent to two-and-a-half percent return on a yearly basis over and above gold price appreciation.
An appropriate asset allocation should be looked into by all investors like
a) Age-wise asset allocation.
b) Diversification into all asset classes.
c) Country-wise Diversification (Investing in global equities available options like MOSL S&P 500 Index fund)
Top 10 Diversified Investable Sectors (A lockdown portfolio 2020)
1. In Life insurance space we like HDFC Life Insurance
2. In Gen insurance space we like ICICI Lombard General Insurance
3. In Breweries & Distilleries we like United Breweries
& Radico Khaitan
4. In Infrastructure space we like Larsen & Toubro
5. In Pharma space we like Sanofi India
, Natco Pharma
& Granules India
6. In Cement space we like Ramco Cement
& UltraTech Cement
7. In BFSI space we like ICICI Bank
, Bajaj Finance
and HDFC AMC
8. In Agrochemical space we like PI Industries
9. In Oil & Gas we like BPCL
& Mahanagar Gas
10. In FMCG space we like Britannia Industries & ITC.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.