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Union MF buying into equities to benefit from discounted valuations

The mutual fund house is betting on telecom, healthcare and industrial sectors.

April 15, 2020 / 05:14 PM IST

Union Mutual Fund is utilising its cash pile to buy equities given the current valuations of the market where many good businesses are available at a discount.

The fund house did not disclose the cash levels, but given the immense volatility and uncertainty in the market, most fund houses had increased their cash levels to 8-10 from normal 4-5 percent.

The cash in the portfolio is now being used by Union Mutual Fund to buy equities.

In an interaction with Moneycontrol, Vinay Paharia, Chief Investment Officer, Union Mutual Fund said, “Market has fallen significantly since February 2020 and has now moved to a substantial discount to its fair value, making valuations very attractive.”

The fund house is bullish on medium to long term return potential from equity markets.

Union Mutual Fund is betting on telecom, healthcare, and industrial sectors.

However, the fund house is underweight on sectors like consumer discretionary and consumer staples. But Paharia was quick to add that fund house’s exposures may change faster than normal due to market volatility and the resultant change in risk-reward ratio for stocks and sectors.

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When asked about the impact on the FMCG sector, Paharia said companies in the FMCG sector sell consumer staples, which are used on a daily basis. The demand is least volatile and relatively less elastic. Hence, the sector is relatively immune to the current economic turmoil and is likely to report a lower impact on business compared to other sectors.

Impact of economy on companies

Indian economy, like the world economy, has been severely impacted by the ongoing spread of COVID-19 and the severity, longevity, and spread of the disease will decide the economic impact on India.

Paharia pointed out that the impact on the country’s economy is "likely to be very severe in FY21 which is likely to recover substantially from FY22 onwards.”

Paharia believes the impact will largely depend on the business of the respective company.

“If the products or services sold by the company are essential or non-postponable (like consumer staples, healthcare, telecom, energy, utilities sector), COVID-19 may have a limited impact on their business,” Paharia said.

However he feels, companies selling products or services, the consumption of which can be postponed like consumer discretionary, real estate, maybe most impacted.

He also pointed out that impact on leveraged sectors like banks and NBFCs (Non-Banking Finance Companies) may depend on respective companies underwriting policies, customer profile and funding mix.

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Himadri Buch
first published: Apr 15, 2020 05:12 pm

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