Is the market downfall being exaggerated and far deeper cuts could be witnessed?
To be fair I do not know. We have not fallen even 10% from the top. Average fall rates can be substantially higher than this. I would expect 10% to be a minimum fall and that will mean 10% from the top which is about 2% or 3% down from where we are right now. A deep fall would be 20% and that would be a meaningful correction.
Having said that, some stocks will correct more and the news is not pleasant. This is a battle against an external virus and is not due to a financial reason. It is not about somebody overleveraging and so on. We will collectively find a way to fight it. Given a year or so, we will be in better shape. We will expect the markets to be very volatile going forward for the next three to six months at least.
What are advising your investors? Do you believe that one can use these dips to buy into some individual stocks?
There are two parts to it. Firstly, the investment philosophy or theory. In general one should be cognisant about debt equity ratios that they are comfortable with and stick to that. So if one is expected to be at 75% equity and 25% fixed income and is at 85%, there is no point investing more in equities. One might look at opportunities to bring that back into alignment and invest in that proportion going forward.
Short-term opportunities will exist in a lot of spaces. Technology disruption is a key factor in the next 10 years. There will be a lot of changes, new players replacing current top players in those fields. Some of the incumbent top players will innovate and some will not. The ones that would not and will die away. This would be seen in case of electric vehicles; in the field of banking and financial services where start-ups and new age players are starting to take a considerable amount of market share.
There are short-term opportunities in specialty chemicals, steel and infrastructure plays where one could build a short-term cyclical approach. Our advice will change based on how deep the markets fall. I would say one should divide attention between short term and long term and between equity and debt.
If you were to take a shot at the banking and finance space — including insurance, NBFCs, microfinance players, etc, what would you pick? Would you stick to the tried and tested large caps, refrain from PSUs and have a smattering of the other stocks?
In financials, we have lowered our position quite substantially. We are only into companies that have secured loans. But having said that, a lot of the banking system and the NBFC system has not seen a deferred cycle in retail for quite some time and we are going to get there in the next six months. We are going to see NPAs jump quite substantially from SMEs and from retail where a lot of the retail focussed banks may get impacted disproportionately compared to the rest.
I also feel that the results right now are not discouraging. Only
has come out so far and that was not discouraging at all. In fact, it is quite interesting in the overall scale of things, although the commentary was a little bit cautious. As banking results start coming in, we will see how much stress the banks are seeing in their books based on their commentary and based on how they provision in their results. The avenues to raise capital may come down for some of the banks and NBFCs as well. One has to be careful. I have reduced allocation and also I will look for opportunities once the crisis becomes more evident to us. Right now it is a little bit non-transparent.
