Quality midcaps, along with consumer (both discretionary and non-discretionary) space and private sector banks may offer good growth opportunities, going forward. The price correction that has happened over the past couple of weeks makes the valuations far attractive in these sectors, Aamar Deo Singh, Head of Advisory, Angel Broking, said in an interview with Moneycontrol’s Sunil Shankar Matkar.
Edited excerpts: Q) Is it the right time to deploy money in equities in a staggered manner?
A) Yes, the broader indices have corrected by almost 20 percent since the start of the year, and valuations have become attractive, even for frontline stocks. The global panic and fear that has set in post the spread of the Coronavirus has hit the investor sentiment real hard, and that led to this incessant dumping of stocks at all levels.
But smart money and those with a long-term perspective have started looking at the markets from a fresh entry view. But yes, as a precaution, averaging is the way forward and also, the focus must be on high-quality blue-chip stocks, where there is good upside potential. At the same time, one needs to be prepared for the long haul.
Q) Do you think the worst is over for the market or is there more room for correction given the current global situation?
A) Markets generally have the tendency to overreact and it is mostly, in times of extreme pessimism that markets form bottoms. However, given the current scenario, and with the unpredictability with regard to the global impact of the coronavirus, its early days to call this a bottom.
In case of any new development on the global level occurs, that could lead to a further sell-off. India VIX is also trading at multi-year highs, which very well captures the fear of the investor community at large. So caution is definitely suggested in such times of volatility.
Q) Yes Bank is moving into safe hands – State Bank of India – after its failure to raise required capital from the market. Do you think the financial sector is still in a mess or Yes Bank is the last one?
A) Financial intermediaries such as Banks (Public & Private) and NBFCs are still saddled with NPAs worth lakhs of crores, which will take time to get resolved. It’s the RBI & the central government that need to kick start the economy, as till such time, we don’t see a revival in private capital investment and a pick-up in consumption, the financial sector will continue to witness stress. Also, a revival in real estate, metals, engineering goods and the infrastructure sectors will play a major role in getting the financial sector back on track.
Q) Many sectors turn attractive after the recent correction. What is your pecking order for investment and why?
A) We believe that quality midcaps along with consumer (both discretionary and nondiscretionary) space, private sector banks offer good growth opportunities. Given the price correction that has happened over the past couple of weeks make the valuations far attractive in these sectors. Further, we should see a gradual improvement in the consumption cycle, which bodes well for these sectors. The only cause of immediate worry remains the containment of the impact of the coronavirus.
Q) Do you expect any surprise stimulus package or a rate cut from the Reserve Bank of India to minimise the impact of coronavirus?
A) The US Federal Reserve & the UK Central Bank, in an emergency move, earlier this month cut policy rates by 50 basis points citing risks posed to the economy in view of the COVID-19 outbreak. Likewise, the Reserve Bank of India (RBI) too should use all tools & mechanism to provide financial stability while preserving economic growth, in such times of uncertainty. Chances of a rate cut by RBI remain low, considering the inflation figures. However, given the prevailing global market scenario, RBI cutting rates by a minimum 25 basis points cannot be ruled out though altogether.
Q) Do you expect more earnings downgrade in current and coming quarters after the coronavirus-led supply chain disruptions?
A) The global, as well as the domestic impact of coronavirus virus, has started, which can be observed in sectors such as aviation, tourism, hospitality among many others. As far as India is concerned, we are relatively safeguarded as of the present, in terms of the spread of the virus. However, companies engaged in exports to the US, Europe and other countries where the virus has spread, could get impacted if the movement of goods gets affected & the international demand wanes.
So, yes, companies exporting could see a negative variation in their earnings if this continues for long enough. On the domestic front too, companies in the entertainment, aviation, hospitality and travel sectors have started feeling the heat. Going forward, companies in other sectors could get impacted, if the spread of the virus is not contained in a relatively short span of time.
Q) Is it the time to move to safe havens like gold or better to stay in equities, given the virus fears?
A) Gold has always been a safe haven asset and an asset of last resort in times of turbulence and heightened uncertainty. And given the prevailing global scare with regard to the coronavirus, it is but natural for investors to look at diversifying their portfolio so that inclusion of gold mitigates the overall risk, and acts as a cushion in such times.
Equities will be more of a stock-specific play focusing on quality stocks, with valuations becoming attractive but would require patience and a long-term perspective in order to reap the rewards.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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