DAILY VOICE | 2020 taught us that bad markets are long-term investor’s best friend: Aditya Khemani

There is too much noise and this stops us from reaching our financial goals, hence, one needs to separate noise from information and make an informed decision, Aditya Khemani, Fund Manager at Motilal Oswal AMC said in an interview with Moneycontrol’s Kshitij Anand.

Q) As we enter the last month of the calendar year 2020, the stock market has hit an all-time high. What are your views on the year gone by and key learnings from investors’/fund manager's perspective?

A) This year has been nothing short of a roller coaster where there has been a sharp divergence between how COVID resistant sectors have fared versus the COVID impacted sectors.

And, in most cases, the longer-term growth trajectory is not going to change much for most sectors thereby proving the point that the market tends to behave like a voting machine in the short-term.

Overall, markets have become very ‘just in time’ where the stock price reacts very closely to business recovery for that company and tends to discount that very fast in its price.

Any adversity brings in lots of learnings and as investors what we are going through is something which no amount of reading/business schools could have instilled in our mind.

First and foremost, timing the market is a futile exercise so one should not spend much time/effort in timing the market. Rather, history has proved market corrections are long-term investors' best friends.

Secondly, there is too much noise and this stops us from reaching our financial goals, hence, one needs to separate noise from information and make an informed decision.

This problem would keep increasing in a world where social media has taken over our lives like never before.

Q) What will be the big factors to track in 2021 from market's point of view?

A) Eventually, the market is a function of how well the economy does as earnings growth is the biggest driver of stock prices. So for the economy to go back to its full potential, one needs to see a revival in sectors that are still impacted meaningfully.

Hence, the progress of COVID in different parts of the world and timelines around vaccines would play a big role.

Secondly, we have seen the Central bankers and governments around the world have been on an overdrive to control the damage to their economies.

This continued fiscal stimulus would be good to revive demand and help the economies get back on their own feet.

Q) Time spent in the market is more important than timing the markets. I think this statement was true for all those which stayed on course with their investments even when both Sensex, Nifty50 hit a 3-year low back in March. What are your views?

A) As I said before, the biggest learning for any investor this year is to ignore short-term noise and remember bad markets is long-term investor’s best friend and short-term investor’s enemy.

So, one should not waste their energy/effort in something which is beyond our control. Stay fixated to your financial goals and take measures to reach there.

Q) India GDP data for the September quarter was better than expected. How will it impact market sentiment in the near future? Does this mean that the recovery is imminent?

A) As an investor, I would think quarterly GDP data is not that useful as it suffers from frequent revisions, changes in base data comes with a lag of a couple of months.

GDP data for September coming in at -7.5%, hence, won't impact market sentiments at all. What is more important to see the trends in high-frequency data points like the progress of GST collections, electricity demand, auto sales growth etc.

Anyway, companies have declared their September quarter results so GDP numbers for the September quarter are not as useful to take an investment decision.

Q) With the economy gaining traction do you think economy-related stocks will hog the limelight in 2021?

A) This is a question even before Covid emerged wherein we saw old economy stocks not do as well. So yes, we are seeing the economy revive but these are early days and still, things remain fluid.

So, I don’t see a full-blown recovery in the economy stocks immediately but they look well poised if we take a slightly longer-term view as the valuations are very attractive in this pocket from a value investor’s lens.

Ultimately, the stock price performance is a slave to earnings and one needs to focus on the earnings driver for these stocks as that will be key to value discovery.

For example, cement companies are old economy but we are seeing some revival in the real estate cycle. Hence a higher demand for cement means better earnings growth which will ultimately result in better stock price performance.

So rather than generalising the old economy and the new economy, we should look at the earnings driver and then take a view.

Q) After a steep rally since March-end – do you think that we could take a breather? What should be the ideal investment strategy – look at the laggards?

A) As I said markets have been divided into Covid resistant and Covid impacted stocks where the first bucket has done meaningfully well than the second bucket.

So, as a long-term investor one needs to capitalise on this opportunity and pick stocks that are leaders in sectors that have been deeply impacted as in most cases they are still meaningfully down.

The only thing is here an investor would need to have patience and take a three-year view rather than a three-month view. So, on an aggregate basis, I expect the headline Nifty to consolidate and the action will shift these COVID impacted stocks within the index.

Q) Which sectors will drive the next wave of bull run in the markets?

A) India is a very bottom-up market where there are good companies in each and every sector but if I have to choose top-down the two sectors which look very promising for buy and hold investor, it will be the top private sector banks and the higher growth companies within the consumer discretionary sector.