Some of the agrochemical/ fertiliser companies may come out less impacted as they were categorised as essentials and the rural areas were also less impacted due to lock-down.
China's per capita income is almost 4x that of India, the region-wise COVID spread was limited in China compared to India, and younger Chinese are much more prosperous and pampered which caused the phenomenon of revenge shopping there, Atul Bhole, Senior Vice President – Investments, DSP Investment Managers, said in an interview with Moneycontrol’s Kshitij Anand.
Edited excerpt:
Q) Stimulus package came and gone – the market seems to be unmoved by the same. Do you think, as and when India opens up, the market is likely to see a rebound like in China where we saw revenge shopping?
A) In the case of India, too, we might see increased demand, but for goods which are mostly essentials in nature. There could also be some pent-up demand for discretionary products but it will be nowhere close to China.
Firstly, China's per capita income is almost 4x that of India, the region-wise COVID spread was limited in China compared to India, and lastly, due to one-child policy in place for almost 4 decades now, younger Chinese are much more prosperous and pampered which caused the phenomenon of revenge shopping there.
Q) Equity inflows at 4-month low – as investors might have stopped SIPs or are afraid to invest now. What is your view and do you think it will get worse?
A) While SIP flows are continuing at a brisk pace, there were lump sum redemptions which caused lesser net equity inflows. We believe and hope that the SIPs might continue sensing the maturity level of investors.
Most investors would be aware nowadays that with the market correction, they would be getting many more units per month now and benefits from this will definitely accrue over time.
We saw some lump sum redemptions initially, which may have happened to avoid further losses but now it should drift down given that significant market correction has already happened.
We are already in the process of gradually opening up and probably have to find out different ways to carry out economic activities with proper care.
Q) The big upgrade which has happened in the telecom sector, especially amid COVID-19. Can it turn out to be a wealth creator – which are the stock that you like?
A) Telecom sector stocks have started to do well post the Supreme Court ruling in Feb'20 itself which necessitated the telcos to stop the decade long tariff war and start taking hikes.
It is also getting benefitted due to (Work from Home) WFH-led connectivity demand. But we are wary of extrapolating this demand beyond a point.
Given that the stocks got re-rated, have done very well amidst the falling market but the asset-heavy nature of the sector will not change, we don't expect significant wealth creation hereon and a lot will depend on the real delivery of numbers by these companies going forward.
Q) Any stocks that are more or less unharmed by COVID-19 outbreak and why?
A) Some of the agrochemical/ fertiliser companies may come out less impacted as they were categorised as essentials and the rural areas were also less impacted due to lock-down. Apart from this, telecom companies were impacted to a lesser extent compared to the broad economy.
Q) It could well be a once in a decade opportunity but how should one look at investing in mutual funds now?
A) In this market, a pessimist will sound smart but ultimately an optimist will make money. This is clearly an episode of greed and fear, fear has taken over the minds of investors while actually they need to start evaluating investment opportunities.
Undoubtedly the hit to the economy due to COVID-19 induced lockdown is massive, but we believe, to a large extent it is in stock prices, at least in part of markets like financials and discretionary consumer companies.
Let us not forget that markets are at oversold levels and have upside risks too in the form of discovery of COVID medicine, Govt. stimulus etc.
Investors should start dabbling now and look to invest till year-end as other risks like US-China relations, US Elections will also pan out by that time. Catching the exact market bottom will always remain an elusive dream.
Q) The government is mulling to open the Aviation sector – but it will still take time for companies to sail high in open skies?
A) Yes, because in general, people will tend to avoid travel & tourism, businesses are going to take a long time to normalise and many businesses will be on the cost-saving drive for quite some time. The load factor of airlines will be much lower for the foreseeable future.
Q) Earnings are unlikely to recover for the next 2 quarters – but any 2-3 companies which are unaffected by the COVID-19 outbreak or slowdown?
A) Some of the consumer staples, especially food companies, agrochem, and fertilizer companies, and telecom did surprise the market positively.
Q) The RBI MPC presser which led to a sharp downtick on May 22 wiping out most of the gains. What was the reason why markets fell – is it banks or the negative growth rate which weighed on markets?
A) The further extension of the moratorium of loan repayments is not good news for banks and NBFCs. It might increase the problems of NPAs and liquidity management for them. At the same time, other measures like repo cut etc. have already proven to be not working to stimulate demand.
A well thought out loan restructuring scheme would have provided much more breathing space to the banking system as well as businesses and reposed faith that RBI will not let the system and economy face further challenges when they are already hit badly.
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