It’s a heavy stock sale, buy quality businesses and don’t try to guess market bottom: Raamdeo Agrawal

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One should not try and guess the market bottom; it is an ideal time to pick a quality stocks and redesign the portfolio, Raamdeo Agrawal, Joint MD, Motilal Oswal Financial Services, has told CNBC-TV18.

Trading was halted in Indian shares for 45-minutes after the Nifty crashed 10% in the early trade on March 13. This the first time in 12 years that such a step was taken as investors continued to panic over the spread of coronavirus.

India has, so far, reported 76 infections and one death.

“One should not guess the market bottom as nobody knows (when) life will come to normal after six-eight months or one year, but I know this is not the end of the world. We are not investing in the market for a quarter, we are always (in) for the long term,” Agrawal said.

Talking about hotels stocks and properties that have taken a beating, Agarwal said a hotel valued at Rs 1,000 crore could now be available at Rs 600-700 crore but one doesn’t have to buy the property. “But you can get their stocks at attractive valuations,” he said.

“If you buy a business today, build your portfolio, then a lot of value will better your portfolio or holdings in times to come or when the recovery starts.”

It was a good time to redesign portfolio, with quality “and be on top of it as price never tells you the truth but buy the business”, Agrawal said.

When they reopened after the 45-minute break, markets recovered from the day’s low to trade around 150 points down at the time of writing this copy.

The fall in India mirrored global markets. Dow Jones, Nasdaq Composite and S&P 500 crashed 9.4-10 percent overnight, while Asian markets were down 0.6-4 percent, barring Australia’s ASX 200, which was up 4.4 percent at the time of writing this copy.

Investors are worried about the spike in cases outside China from where the outbreak began. The US has banned travel from Europe, Italy is in an unprecedented lockdown and India, too, has suspended most travel visas for a month.

The number of cases across the world has crossed 1.25 lakh and more than 4,600 people have died of the virus that causes flu-like symptoms but China has seen a big drop in infections.

“Today, nobody is looking at China, which controlled the virus, but the bigger worry is that the US is shut, some parts of Europe are shut, which is important for the bears than China now,” said Agarwal.

He sees the crisis as an opportunity to switch to a good portfolio. “Even investors are trying to buy good mutual funds now and if you look at February, (it saw) equity inflows (around Rs 10,000 crore) along with consistent monthly SIP inflow of around Rs 8,000-8,500 crore,” he said,

Leverage collapse

There was a fall in several largecaps and even mid and smallcaps. “It is because of the leverage collapse. If there is a 30-40 percent sudden fall in any stock, all margins taken for the same are gone and then margin-funding becomes difficult. Either the buyer has to give more cash for the margin or the broker has to square off the position, hence when shares start falling sharply, lender or brokerage has to start liquidating the positions,” he said.

Work from home

Several companies, including some in India, have asked their employees to work from home.

“But it is difficult to judge the impact of it on the economy and for three months, how one can modulate in earnings as profit is to be made for long term. Currently, tourism, aviation, hotels (are) impacted badly, but it is not the end of life. Mentally, for companies, it is a very tough quarter to pass and the market is trying to compound all those problems well in advance with very fast speed and with a long-term perspective,” he said.

Looking at the market fall, major share buyback from companies would happen and insider buying would also take place.

Don’t time the market

Agarwal, who said he was fully invested, advises a staggered investment, “as it is very irrational time and it is very difficult to predict the market”.

“Hence today is a stock sale, if the stock sale is over then you won’t be able to buy it tomorrow,” he said.

He said it was a fool’s game to think about the market bottom, but values were visible– a lot of stocks in mid-smallcaps were available at 12-15-17 PE multiples, Agarwal said.

Earnings

On earnings downgrade, Agarwal said one should not bother about earnings for two to three quarters, as analysts can predict the loss and even if they do, “don’t believe them. Better to focus on second half of FY21 earnings or at best FY22 earnings”.

“Time to assert, faith in business, future of entrepreneurship. Global growth will be lower to 2 percent from 3 percent, which is short term and not long term,” he added.

Disclaimer: The views and investment tips expressed by experts on moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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