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DSP MF sees severe cuts to corporate earnings if lockdown is extended

Vinit Sambre, Head-Equities, DSP Mutual Fund, feels travel, tourism and retail sectors have been the hardest hit due to the lockdown

April 09, 2020 / 07:13 PM IST

The impact of of COVID-19 on the corporates is likely to depend upon the timeline projected for recovery, according to Vinit Sambre, Head-Equities, DSP Mutual Fund.

However, he said from the conversation with companies, he feels, that if the lockdown gets lifted as scheduled, and within a month, then the earnings are likely to see a fall between 25-35 percent for FY21 but if the lockdown were to get extended then the fund house expects see severe cuts to earnings.

Sambre feels travel, tourism and retail sectors have been the hardest hit due to the lockdown and most other sectors are likely to see second and third order impact.

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The fund house is upbeat on healthcare, banking & financials, telecom, and consumer discretionary.

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However, the fund house is avoiding investments in fast moving consumer goods because of rich valuations.

Edited excerpts:

Q. What is DSP MF's current strategy in the current market?

A. The nationwide lockdown was an important decision to take but it will also have an economic impact on most of the companies / sectors in varying degrees. Some sectors like travel, tourism, retail etc have seen first order impact and most others are likely to see second and third order impact.

The SMEs and unorganised segments are also likely to face significant challenges. Many businesses with weak fundamentals are likely to become weaker in this turmoil.

Hence, it is very important that we focus on companies which are strong fundamentally and would survive this crisis. These companies would get enough opportunities to grow meaningfully post the crisis. So as a strategy we are currently focusing on companies with strong leadership qualities, having great competitive advantage, high cash generation, low debt among other attributes.

Q. Which sectors are you picking up at this point?

A. At the margin, we are positive on healthcare, banking & financials, telecom, consumer discretionary, and to some extent non-discretionary as well.

Q. Do you think it is a stock specific market rather than sector-specific?

A. From the lows we have seen or are likely to see, whenever the tide turns, it would lift almost all boats together. However, in the long term, significant outperformance can be only achieved by having superior stock selection. Hence, as a philosophy we select companies from our research universe after carrying out detailed research on the same.

Q. What is your take on the impact of COVID-19 on companies?

A. Impact of COVID-19 is likely to depend upon the timeline to recovery. After having spoken to many companies, the sense we get is that if the lockdown gets lifted as scheduled, and within a month post that if we start walking a path to gradual recovery, then the earnings are likely to see a fall between 25-35 percent for FY21. However, if the lockdown is extended, then we would see severe cuts to earnings.

Q. What is your outlook on FMCG companies?

A. From the business perspective, FMCG companies are well-placed in the current environment due to the essential nature of the products it sells. These companies also have a good long term future. However, we are not very comfortable with the rich valuations some of these trade at.

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Himadri Buch
first published: Apr 9, 2020 07:13 pm

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