The outlook on an annualised basis still remains constructive both for the economy and corporates
The coronavirus (COVID-19) pandemic is beginning to have an impact on economic activity and is tempering growth rates for the financial year, as per a senior official from the mutual fund (MF) industry.
Speaking to Moneycontrol, Gaurav Misra, Senior Equity Fund Manager at Mirae Asset Mutual Fund said, "The outlook for the global economy earlier was more or less a continuation of the levels seen last year. However, expectations are moderating on account of COVID-19."
After emerging from Wuhan in China, COVID-19 had turned into a global pandemic affected over 100 countries. India has at least 147 active reported cases so far. Of these, 14 have recovered and three have died.
Globally, there are over 1.98 lakh confirmed cases of COVID-19. At least 7,900 people have died so far — many in China. However, infections have steadily risen in Italy, France, Iran, South Korea, Spain and the United States.
Misra pointed out that while the immediate quarter will see a strong downtick in growth rate, as the global situation is fluid, it is still unclear how the prospects of the whole year will be impacted.
He believes Indian economic indicators have been stable all this while and are expected to remain so. India was on the verge of coming out from a period of sluggish growth and the fund house was expecting a gradual recovery.
However, on account of COVID 19, he envisages that the sluggishness will continue in near term growth. "If we fail to reasonably contain the spread of COVID-19, then the outlook for the next four to six quarters will get vitiated," Misra said.
He, however, said that the outlook on an annualised basis still remains constructive — both for the economy and corporates.
Recent weakness in global crude and the highly accommodative global monetary stance is a plus for the India story, believes Misra.
Misra said the rural sector is looking better and infrastructure spend here continues apace.
"This along with the considerable financial easing undertaken in the domestic economy will eventually help in propping up growth," he added.
He feels that there are many structural drivers which may put the domestic economy on a robust growth path for the next decade.
Misra also mentioned good businesses will also try to capitalise on this opportunity. "Near term quotational weakness in such firms present an opportunity," he said.
Volatility is inherent to the equity market and investors must be prepared to see quotational losses.
In the past week, the Sensex has seen an overall drop of 10 percent and over the month — twice that (20 percent). "This magnitude of fall has been seen across the world as well. It reflects the uncertainty which has arisen on account of COVID-19 and has led to fear overtaking the asset class," Misra explained.
Speaking about the comparison to previous bear markets, Misra said each bear/down market has its own genesis.
"In this case, the cause is a non-economic/non-financial. However, a global healthcare issue impacts economies, corporates and the growth rates/growth outlook therein. Since the cause is a non-financial one, authorities have to first do a good job in containing the spread of the pandemic in the most effective manner," Misra said.
Strategy to handle sluggishness
Misra said despite the market fall the portfolio stance is largely unchanged.
"Our core stock selection approach remains the same i.e. to pick businesses with strong business models, with a robust growth outlook — preferably structural, run by good management at the best margin of safety," Misra said.
"At the portfolio level we also keep space for firms in a deep value/cyclical bucket," he added.
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