This is a once-in-a-decade opportunity to invest in equities: S Naren

After a sharp fall from the top, markets around the world were buoyed by central bank stimulus. In the Indian context, the market does not take into account a blockage beyond 21 days from now, S NAREN, executive director and chief investment officer of ICICI Prudential AMC, says Puneet Wadhwa. Edited extracts:

What do you think of the recent measures announced by the government and the Reserve Bank of India (RBI)?

Central banks around the world are taking an “all it takes” approach to give the economy the boost it needs in this time of crisis, and the RBI should do the same. Positive macroeconomic indicators, a spread in India’s interest rates above world interest rates, and lower inflation expectations have provided the RBI and government with significant leeway to provide stimuli. monetary and budgetary. In addition, the RBI has $ 480 billion in foreign exchange reserves, which places India in a comfortable position in terms of foreign exchange reserves.

Have markets overreacted to the COVID-19 pandemic?

Markets have reacted strongly to developments related to the coronavirus pandemic (COVID-19) due to fears of its potential impact on national and global economies. Currently, stock valuations are cheap and investor sentiment is one of panic. Historically, these periods have proven attractive for long-term equity investments. It’s a unique opportunity in ten years. The last time investors had this opportunity was in 2001 and then in 2008.

Do you expect a new wave of sales once the fear of health has subsided and companies have assessed the impact?

The market is in oversold territory and indicates that it is time to invest in stocks. As the flow of news about the COVID-19 pandemic improves, markets should also improve. The risk factor for this assumption is that the market does not take into account a blockage beyond 21 days. That said, we do not know how long the impact of the COVID-19 pandemic will last. There are disruptions on both the supply and demand sides – a general slowdown is therefore likely in the near future. India, too, will accept this development and its impact will be visible in the results for the coming quarters. Thus, a new bull market in the near future seems unlikely.

Overweighted and underweighted sectors?

In any market background, the flow of news is always extremely negative and one can never predict when the market will bottom out. It’s always known in retrospect. Even the debt market is currently attractive and presents an attractive investment opportunity as there are reasonable credit spreads.

Overweight in metals, mining, telecommunications and electricity. Non-durable consumer goods, automobiles and banking are the pockets in which we are underweight.

What about the banking sector in light of recent developments and the successes of this correction?

Valuations in the banking sector – private and public sector – have improved considerably. We have always been selectively positive on themes such as corporate credit banks, good liability franchises and customer-centric non-lending franchises and have improved exposure to certain banks that have good asset-liability management , a high current account savings account (CASA) deductible, and a large presence in financial services. Non-bank financial companies (NBFCs) may see moderation in loan growth, but we are positive on some gold and insurance financiers, i.e. the segments that could benefit from long-term structural growth from India.

Are there lessons from previous market corrections that investors can use now?

The lesson from 2008-2009 is that even if profits decline, it doesn’t matter because the markets will look beyond. It should not be forgotten that the share price has corrected by 30 to 40%. It makes no sense to look at profits when stock prices have faced such a steep correction.

Volatility is an integral part of investing in equities. The loss of confidence in an asset class due to its inherent nature is unwarranted. India is in a very favorable position on the macroenvironment front. Investors should take this opportunity to aggressively invest in stocks. Historically, it has been found that whenever the markets correct themselves, investors who stay put benefit exponentially.

Are you facing buyout pressures?

Before the outbreak of the pandemic, the valuations of the Indian market were high. We therefore advise investors to opt for dynamic asset allocation products and debt schemes. There was virtually no buyout pressure. Indian investors have matured since the last crisis in 2008. We agree with this correction. Several sector names have corrected significantly and are available at valuations even below 2008 levels.

Prospects for systematic investment plan (SIP) flows?

Over the past 12 months, entries into SIPs have averaged Rs 8,200 crore. This trend is expected to continue as SIP has become the preferred route for retail investors to invest in mutual funds. In the short term, there may be some flaws, but the general trend, in our view, will remain positive.

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