The family blooper video of two little kids prancing into the room where their father, a defense analyst, was giving a video interview to the BBC that was telecast across the world, just as his wife rushed in behind them and dragged them out, became quite a laugh riot on social media. The intrusions were quickly forgiven, even gushed at. Indian mutual fund managers find themselves in a similar spot these days, as they settle down in their homes to manage your mutual fund schemes, amid their kids also adjusting to lives without schools and colleges. The global Coronavirus outbreak that has led to more than 3 lakh people being infected around the world and caused the deaths of over 10,000 people has wreaked havoc with people’s lives, livelihoods, global economies and financial markets. The BSE Sensex saw three of the biggest falls in its history in the month of March itself. The BSE Sensex finished at 28,288 on March 19, down from a high of 41,945 on January 17 earlier this year.
Looking for bargains
Sitting on the fence for a while now due to rich valuations, fund managers are slowly going shopping. Some Indian firms have been quick to cash in on the loss of business in China.
Nimesh Chandan, Head of investments-Equity at Canara Robeco Asset Management Co (AMC) says that companies that manufacture electronics, specialty chemicals and mobile phones locally would benefit. “With factories shut in China at the moment, production is likely to shift to India,” says Nimesh. Hotels and travel & tourism are the worst affected and Nimesh say that some of these companies might end up with operational losses, made worse by loans to repay. Nimesh also went shopping for companies that benefitted from the recent sharp fall in crude oil prices such as paint manufacturers.
Mrinal Singh, Deputy Chief Investment Officer (CIO)-Equity of ICICI Prudential AMC has taken a somewhat different approach. Mrinal says that his fund house bought state-owned companies in utility and commodities sectors, along with domestic businesses with attractive valuations, including select pharmaceutical firms. Mrinal believes that after the deadly virus outbreak, some Indian pharmaceutical companies are better-placed for franchising should a Coronavirus vaccine get tested internationally and be brought to India; also their capability for mass producing high-quality generics will put keep in good stead with global healthcare requirements. He is already looking at a recovery in China – the birthplace of Coronavirus – and has bought a few metal stocks. “Already, China is showing signs of getting the outbreak under control. When the virus globally comes under control, China has a good chance to be among the first economies to recover. Metal stocks may do well,” says Mrinal.
Some such as Akash Singhania of Motilal Oswal AMC do not feel that there is a need to shuffle the holdings in the portfolio that much these days, “as it’s better to wait till the volatility reduces.” He adds, “Markets are very fluid and it’s impossible to give a near-term outlook.” Goldman Sachs and Morgan Stanley have declared that Coronavirus has triggered a global recession. A March 19 BofA Global Research note mentions that there is a possibility of COVID-19 causing a global recession in 2020 – of similar magnitude of the recessions of 1982 and 2009. It forecasts annual GDP growth to be just 0.3 per cent. Among the big-three economies, the US and the Euro area will see negative growth, while Chinese growth is expected to come in at a paltry 1.5 per cent, the report says. Back home, CRISIL has cut India’s annual GDP growth rate for the fiscal year 2021 to 5.2 percent, from 5.7 percent projected earlier. CRISIL says that this number might even go down further.
Fund managers grounded
As India heads for a potentially longer breakdown – similar to the one witnessed on Sunday – fund managers are increasingly forced to work from their homes. A large fund house, whose officials weren’t willing to be quoted for this story, said that it has split its teams into two. Half the team worked at home for a week, while the other half went to office last week. Teams are split in such a way that there is enough physical gap between any two working people.
While most fund managers and analysts have shifted to working from home entirely, some dealers went to offices last week. While fund managers and analysts can work from remote locations, dealers (fund officials who are in charge of placing buy and sell order of stocks) have to communicate with their panel of brokers (external brokerages who connect with stock exchanges to execute the trades) for their daily transactions. Many dealers of fund houses use Bloomberg terminals to connect with their brokers online and place their orders. A fund manager who did not want to be quoted said that his fund house has Bloomberg applications installed on a dealer’s laptop to be able to transact even from their own homes, if the need arises. Another CIO of a small-sized fund house says that while his fund house uses a Bloomberg terminal in office to place orders, it sends emails to their brokers these days when working from home.
“Zoom and Skype are my best friends these days,” says Lakshmi Iyer, CIO-Debt and head of the products team at Kotak Mahindra AMC. Lakshmi says that for the past two days, even her fund house’s fixed income dealers have been working from home. Armed with a specialised phone with a recording device, the dealers take requests from their fund managers over a messenger service (also recorded and archived) and then call up their brokers over these phones. Conversations, obviously, are recorded, especially when it comes to buying and selling debt securities since such securities are bought and sold over telephones.
Global fears cast a dark cloud
Perhaps a glimmer of hope behind the Indian equity markets’ crash is the fact that foreigners (FIIs-foreign institutional investors)) are selling due to worries back home, more than India-related concerns. In March so far, foreigners have sold equities worth around Rs 36,539 crore and fixed income securities of around Rs 37,888 crore. In the whole of 2018, foreign institutional investors had sold equities (net sales) worth Rs 34,575 crore. Gopal Agarwal, Head of Macro Strategy and Senior Fund Manager at DSP mutual fund says that because of corporations in the US facing stress on account of closures or slowdowns due to the spread of Coronavirus, FIIs have been selling in emerging markets such as India and taking the money back. “There is relentless pressure in the bond market as well; this is a liquidity crisis. It’s got nothing to do with the fundamentals of corporates here in India,” he says.
Meanwhile, as investors, don’t panic. Continue your SIPs, don’t withdraw in panic and make sure you invest proportionately in equity, fixed income and a little bit in gold to ensure your asset allocation is in place.
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