Investors should stay calm. Every few years, markets experience sharp corrections and volatility on the downside. Stock prices are always more volatile than fundamental values of businesses.
Nimesh Chandan Head – Investments, Equities, Canara Robeco MF, said the coronavirus pandemic is a Black Swan event, considering that it was not predicted, and has an extremely high impact on economies and markets. He added that uncertainty over how long will it take for things to return to normal has led to fear and ultimately to sharp selloff in the market.
Edited excerpts:
Q: What is your outlook on the market?A: Markets don’t like uncertainty and hence undergo a correction. At this point in time, it is difficult to estimate how much the coronavirus infections would spread and by when we will return to business as usual. Most market participants are struggling to price in the impact on the earnings growth of companies.
The uncertainty has led to fear and ultimately to a sharp selloff. Once the contagion rate (the pace of infection spreading) reduces and the recovery rate (patient discharges from hospitals) improves, investors will be able to forecast the end of the pandemic and price the companies with a much clearer view of the impact.
An important point to note is that markets may not wait for the economic situation to normalise again. It is possible that markets start discounting the normalcy a bit early, once there are discernible signs of improvement.
Q: What is your strategy during such markets?A: The coronavirus pandemic is a Black Swan event considering that it was not predicted, and it has an extremely high impact on economies and markets. There may not be a way to anticipate Black Swan events, but there are ways to navigate them and use them to our advantage.Q: Which are the sectors Canara Robeco is betting on for investments?
A: At Canara Robeco, we are deploying cash in companies that have a strong business model, a good management team, limited capital requirement, healthy cash flows and a huge runway to grow profitably.
We believe, as a basket, these businesses will be worth much more in future and will create wealth. We analyse how the current crises will impact their business too and select companies that have strong, unleveraged balance sheets.
We like companies that are less impacted by this crises like FMCG, pharmaceuticals, healthcare, utilities, telecom, etc.
We prefer companies that can experience pent up demand or that can have higher market share when the situation normalizes.
We are also looking at companies that are affected by the crises, but the market has discounted the bear case scenarios and are trading much below their intrinsic value.
Q: What is your outlook on the market?A: Markets don’t like uncertainty and hence undergo a correction. At this point in time, it is difficult to estimate how much the coronavirus infections would spread and by when we will return to business as usual. Most market participants are struggling to price in the impact on the earnings growth of companies.
The uncertainty has led to fear and ultimately to a sharp selloff. Once the contagion rate (the pace of infection spreading) reduces and the recovery rate (patient discharges from hospitals) improves, investors will be able to forecast the end of the pandemic and price the companies with a much clearer view of the impact.
An important point to note is that markets may not wait for the economic situation to normalise again. It is possible that markets start discounting the normalcy a bit early, once there are discernible signs of improvement.
Q: What is your strategy during such markets?A: The coronavirus pandemic is a Black Swan event considering that it was not predicted, and it has an extremely high impact on economies and markets. There may not be a way to anticipate Black Swan events, but there are ways to navigate them and use them to our advantage.Q: Which are the sectors Canara Robeco is betting on for investments?
A: At Canara Robeco, we are deploying cash in companies that have a strong business model, a good management team, limited capital requirement, healthy cash flows and a huge runway to grow profitably.
We believe, as a basket, these businesses will be worth much more in future and will create wealth. We analyse how the current crises will impact their business too and select companies that have strong, unleveraged balance sheets.
We like companies that are less impacted by this crises like FMCG, pharmaceuticals, healthcare, utilities, telecom, etc.
We prefer companies that can experience pent up demand or that can have higher market share when the situation normalizes.
We are also looking at companies that are affected by the crises, but the market has discounted the bear case scenarios and are trading much below their intrinsic value.Special Offer: Subscribe to Moneycontrol PRO’s annual plan for ₹1/- per day for the first year and claim exclusive benefits worth ₹20,000. Coupon code: PRO365
