Recognizing that widespread sale has made appraisals attractive, SAMPATH REDDY, Director of Investments at Bajaj Allianz Life tell Swati Verma that even if the market recovery – whenever it occurs – will be led by large-cap stocks, in a 3-5 year perspective, even small and mid-cap stocks seem very attractive at the moment. Edited extracts:
Your opinion on the current market scenario?
The markets no longer look at the fundamentals. There is an extreme fear of the coronavirus (Covid-19) pandemic and its impact on the economy, which is playing on the minds of investors. Right now, no one seems to care about investments, growth or stock valuations, which have hit historic lows. The situation is also the same in developed countries. Foreign investors (FII) sell Indian stocks. We are unable to absorb this sale and the markets are therefore in decline. There is not a lot of cash.
That said, it should be noted that foreclosure in India will not be an ongoing affair. Of course, this will have a significant impact on corporate profits, but the economy will probably return to normal in the next two to three months. The current situation is not insurmountable. During the course, it is possible that the profits of a quarter or even the half-yearly profits will be taken away, but that should not make a difference for long-term investors. That said, unfortunately, the market works like this and reacts to headwinds and tailwinds in the short term.
Is it a good time to invest in stocks?
Yes, this is the perfect time to buy. Although it is difficult to say how far the market can go down. Markets may still fall by 10% or even 20%. At the same time, it is also possible that the correction is complete and that we have reached the bottom. But whatever the situation, it’s a very good opportunity to invest in stocks. I am sure that three months, six months or a year later, the markets will be well above current levels. Meanwhile, investors need to recognize that these times are tough and therefore need to manage liquidity very well. Sufficient funds are needed to ward off the recession of the coming months.
Are your sectors overweight and underweight?
We remain optimistic about the pharmaceutical sector, which has suffered enormous damage in recent years due to the problems of the American FDA and price competition in the United States, etc. The sector looks promising from an evaluation point of view. The consumer sector has not experienced much correction as consumers are still purchasing basic, soap and other essential and everyday items, even during the lockout period. Information technology (IT) is another area that looks promising. The rupee has come off and IT players will benefit from the currency’s weakness. While there is a demand side impact as overall economic growth is expected to suffer, the margin has nonetheless been fairly good for IT service companies. That said, there is money to be made in all sectors because overall, everyone will bounce back in the future. Financials could take a little longer to recover, as this type of closure raises fears of an increase in non-performing assets (NPA).
Can higher data consumption increase the fortune of the telecommunications sector?
The telecommunications sector is on the road to recovery and will continue to do so. The average income per user (ARPU) of telecommunications players was on the rise even before the start of the current crisis. And working at home (WFH) requires more and more connections and increased use of bandwidth. There has been no destruction of demand for this sector in the current state of the market. Instead, it has been one of the main beneficiaries of the current crisis. Some regulatory regimes and court rulings have been a setback for telecommunications companies, but once these issues are put aside, the sector will perform well.
What do you think of medium and small caps?
Before the market liquidated, only a handful of stocks held the market. Now there have been widespread sales. Although the market recovery is being led by large-cap stocks, from a three to five year perspective, even small and mid-cap stocks look very attractive.