How should investors approach their equity allocation now?
Investors need to focus on the diversified large, mid, or multi-cap segments as the valuation discount of mid/small-cap is adequate at this stage. In addition, certain pockets of value have a potential for better valuation, especially if the government’s move towards privatisation picks up pace. Given that the broad market valuation seems to be having relatively less room for a significant appreciation and the short term news flow could remain volatile, balanced advantage funds are a good option and have weathered the storm very well in the last four-five months. As far as diversified equity funds are concerned, a staggered approach is advisable.
Your estimates for corporate earnings for the April – June 2020 quarter and financial year 2020-21 (FY21)?
The consensus Nifty EPS (earnings per share) estimate for FY22 has been 15 per cent so far, with the risk of 5 per cent cut given lack of fiscal stimulus and staggered lockdown removal. That said, the demand across industries is back at 70-90 per cent of pre-Covid-19 levels but the real picture will emerge in August – September once the pent-up demand and restocking.
Your overweight and underweight sectors? Any contrarian picks?
We are overweight on consumer, telecom, energy, and private banks. Remain underweight on autos. Though our funds were underweight on IT services, but that has changed slightly in recent months. That said, given the uncertainty around the impact that moratoriums will have on the asset quality of the banks down the road, financials have underperformed recently after being a bid driver of indices over the last two years. And the uncertainty there is likely to continue.
Is telecom a good bet despite the adjusted gross revenue (AGR) overhang?
The telecom sector is seeing a 10-year down cycle coming to an end as the industry structure has changed and continues to evolve for the better. This is bringing in the much-needed price discipline and hence a positive upgrade cycle in average revenue per user (ARPU) and earnings. In addition, in India there is an opportunity for the telecom operators to participate in the value creation that takes place in the surrounding ecosystem of e-commerce. This is a new trend unlike the rest of the world. Telecom stocks offer an opportunity to participate in the growth of the digital economy.