Acknowledging that the across-the-board sell-off has made valuations attractive, SAMPATH REDDY, chief investment officer at Bajaj Allianz Life tells Swati Verma that though the market recovery – whenever it comes – will be led by large-cap stocks, from a three to five year perspective, even the small-and mid-cap stocks look very attractive right now. Edited excerpts:
Your view on the current market scenario?
Markets are no longer looking at the fundamentals. There is an extreme fear of coronavirus (Covid-19) pandemic and its impact on the economy which is playing on investors’ minds. At this point in time, nobody seems to be bothered about investments, growth or equity valuations, which have hit historic lows. The situation is same in the developed countries as well. Foreign investors (FIIs) are selling Indian equities. We are unable to absorb this selling and hence markets are falling. There is not much liquidity.
That said, it should be noted that the lockdown in India will not be a permanent affair. Of course, it will have a significant impact on the companies’ earnings, but the economy will be back to normal probably in the next two – three months. The current situation is not insurmountable. During the course, it is possible that a quarter’s earnings or even half-yearly earnings will be washed away, but that should not make any difference to the long-term investors. That said, unfortunately, the market functions like that and reacts to near-term headwinds and tailwinds.
Is it the right time to invest in stocks?
Yes, it’s a great time to buy. Although it is difficult to say how low the market can go. It is possible that markets may fall another 10 per cent, even 20 per cent. At the same time, it is equally possible that the correction is over and we have reached the bottom. But whatever be the situation, it is a very good opportunity to invest in equities. I am sure that three months, six months or one year down the line, markets will be far higher than the current levels. Meanwhile, investors need to acknowledge that these are challenging times and therefore should manage the liquidity very well. One must have sufficient funds to tide away next few months’ downturns.
Your overweight and underweight sectors?
We remain bullish on the pharma sector that has witnessed huge drubbing in the last few years owing to US FDA issues and the pricing competition in the US, etc. The sector looks promising from valuation perspective. Consumption sector has not seen much correction because consumers are still buying staples, soaps, and other essential and day-to-day products even in the lockdown period. Information technology (IT) is another space that looks promising. Rupee has come off and IT services players will benefit from weakness in the currency. Though there will be impact on demand-side as the overall economic growth is expected to take a hit, still the margin has been quite good for IT services companies. That said, there’s money to be made in every sector as by and large, each of them will rebound in the future. Financials may take a little longer time to recover as these kinds of shutdown spawn fears of a rise in non-performing assets (NPAs).
Can higher data consumption boost the fortunes of the telecom sector?
Telecom sector is on a recovery path and will continue to be so. Average revenue per user (ARPU) of the telecom players was on an upswing even before the current meltdown started. And work from home (WFH) calls for more and more connections and more usage of bandwidth. There hasn’t been any demand destruction for this sector in the current market condition. Instead, it has been a core beneficiary of the current crisis. Some regulatory regime and court ruling have been a setback for the telecom companies but once these issues get sidelined, the sector will perform well.
What’s your take on mid and small-caps?
Before the market sell-off, only a handful of stocks were holding up the market. Now, there has been across-the-board selling. Though the market recovery will be led by large-cap stocks, from a three to five year perspective, even the small-and mid-cap stocks look very attractive.