PGIM Mutual Fund is betting on sectors such as chemicals, pharmaceuticals and utilities as they are offering good growth visibility and are trading at reasonable valuations, Srinivas Rao Ravuri, its CIO - Equity, told Moneycontrol.
He feels market valuations are attractive on metrics like price-to-earnings (P/E) and market capitalisation to GDP ratio. "The market is offering a great opportunity to invest with a 3-5 year view but warns that one should be prepared for short term volatility."
The fund house does not prefer to take cash calls and is fully invested in the market at present.
Edited excerpts:Q. What is your view on the market given the current scenario?
A: We are going through turbulent times as the coronavirus pandemic is leading to a global economic crisis. Two things are impacting the market: 1) Selling by FIIs; and 2) India's economic and earnings outlook.
FIIs are massively selling in emerging markets across debt and equities. FIIs have sold $8 billion worth of Indian equities in March – the highest ever in a single month selling and almost double of its previous high of $4.4 billion in January 2008.
Looking at the volatile environment across the world, FIIs may continue to sell, although not at the same intensity. As a result of COVID-19, the country-wide lockdown has seriously impacted economic activity. One can expect significant downgrades to GDP growth and corporate earnings.
Restricting the spread of the virus is extremely important, but we can't afford complete a lockdown also. Market valuations are attractive on metrics like P/E and m-cap to GDP ratio. They offer great opportunity to invest with a three-to-five year view, but one should be prepared for short term volatility.Q: What will be the impact on economy due to lockdown? Which sectors will benefit because of the lockdown?
A: Current lockdown and concern over COVID-19 have a definite impact on multiple sectors and it is going to change customer behaviour for sure. Sectors like airlines, tourism, autos and other consumer discretionary sectors are taking the maximum brunt, whereas FMCG and pharma have actually benefited. Overall, the economy has taken a definite hit and economists have started talking about GDP growth rate declining to about 3.5 percent in FY21.Q: What is the strategy that PGIM AMC is adopting? Are you looking at this fall to invest?
A: We have been focussed on investing in companies with low leverage, high return on equity (RoE) and reasonable valuations. Companies with high leverage have seen maximum correction as these companies are at great risk in current trying times. We remain fully invested as we don't take cash calls. We have rejigged our portfolios to reduce exposure to consumer discretionary sectors.Q: Which sectors are you upbeat on and according to you which are the sectors that will emerge as leaders?
A: We are upbeat on chemicals, pharma and utilities as they offer good growth visibility and are trading at reasonable valuations. It is too early to talk about new leaders as we are going through a fair amount of volatility. Financials have been leaders in recent times, but they have witnessed a sharp fall in the recent crash.Q: What will be the impact of the lockdown due to COVID-19 on companies?
A: Most companies have been impacted by COVID-19 as the overall economy itself is impacted. There are few short term impacts. We believe there are few structural impacts also like work from home (WFH) as a concept. Similarly, the pace of digitisation and ecommerce would accelerate.