DAILY VOICE: Investors are worried about second wave of COVID-19, says Canara Robeco's Nimesh Chandan

Currently, equity investors around the world are worried about the second wave of COVID-19. Valuations have moved up significantly from what they were six months ago and are factoring a better growth trajectory from next year, Nimesh Chandan, Head of Equities, Canara Robeco Mutual Fund, said in an interview with Moneycontrol’s Kshitij Anand.

edited excerpts:

Q) Bulls lost their grip on D-Street in September. Which are the factors that weighed on equity markets?

A) Corrections are a part of the bull market and it is difficult to time them. The equity market has rallied sharply post March 2020 as investors moved from panic to optimism.

In any rally, there is a point when expectations from the economy and businesses rise so much that stock prices become vulnerable to disappointments.

Investors wait to reaffirm the narrative driving the rally and that can lead to a time or a price correction.

Currently, equity investors around the world are worried about the second wave of COVID-19. Valuations have moved up significantly from what they were six months ago and are factoring a better growth trajectory from next year.

If the incoming data points challenge these assumptions, that could trigger a correction.

A) At Canara Robeco, we look to invest in companies that have a robust growth-oriented business, are run by competent management and are available at a reasonable valuation.

As a long-term investor, we resist the temptation to react to short-term market moves. However, we do review our exposures in companies where the prices have crossed our bull case scenario or the business developments are not as per our initial expectations.

In the recent past, there is no significant change in terms of our sector allocation except telecom. Within the sector, there could be changes on a stock-specific basis.

A) A company coming for an IPO should be evaluated the same way, as a prudent investor would evaluate an investment in the listed companies.

The focus should be to determine whether the company is a good business to own for a longer-term. The business and valuations of the company coming for an IPO should be evaluated with its listed peers and then one should reach a decision whether to subscribe or not.

For an investor, investing in a company that is already listed for some time has one important advantage compared to investing in a new listing- a good amount of historical data is available about the business performance, management performance, and the valuation range.

A) There are sectors that have been less impacted or even immune to the COVID-19 pandemic. Pharmaceuticals, consumer staples, telecom, and utilities have been less impacted.

In terms of themes- Rural India, Atmanirbhar Bharat, and inflation have been themes that have helped protect the downside as well as participate in the portfolio. However, valuations have moved up significantly for many companies in these sectors and themes.

These sectors and themes can protect the downside if the pandemic situation worsens but one must be selective if one wants to invest for an upward rerating.

A) The investors have built-in expectations of normalisation of economic and business activity after the vaccine. If there is a delay in recovery in consumer and business spending, the economic growth and earnings recovery will have to be adjusted downwards.

The second problem markets can encounter is that at some point in time, governments will have to address the high fiscal deficit and high debt to GDP level in the economy.

The fiscal and monetary stimuli given by governments across the world may be withdrawn at some point.