How are fund managers navigating the storm? Are you taking any cash calls or strategically reallocating money?
We are not increasing cash calls and find the market more attractive today than three months ago, as valuations are much cheaper. In terms of reallocating money, we are averaging some of the cyclical stocks we own and also adding to sectors which benefit from a rupee depreciation.
What’s your view on the recent measures announced by the government and the RBI?
The policy boost by the government and the RBI will help the economy and financial system immensely. At this point in time, the corporate sector needs support and to a certain extent, both the government and the RBI have delivered on that.
What is your view on the earnings growth for FY21? What is your assessment on the impact of Covid-19 on businesses and the economy?
It may be difficult to estimate FY21 earnings, as the first quarter will be extremely stressful, given the near halt in economic activity. It is probably better to assume that 2021-22 will have certain growth on 2019-20 earnings and to look at the market from that viewpoint. Also, the top two-three players in each industry may gain market share in the next few quarters, as the balance sheet of the smaller players may get extremely stretched.
What is your take on banking and non-banking financial company stocks?
Lending by definition is a leveraged business and any leveraged business will have a bigger adverse impact in such a period where the global economy is facing one of its biggest shocks ever. The near-term outlook is challenging, but over time, large banks with good liability franchise and diversified asset base should emerge winners.
Which sectors are you betting on?
The theme we are advocating is buying the best balance sheet in cyclical sectors, so that when the economy stabilises, the survivors benefit significantly — both from macro tailwind and market share gain from weaker players. We see such opportunities across several sectors such as auto, real estate, aviation, insurance, and retail.
What is the outlook for systematic investment plan flows and lump sum investments?
The MF industry is seeing consistent inflows even now. While near-term returns have been weak, we believe the market is attractively positioned for investors to increase lump sum allocation. Our advice is that such extreme downturns should be used to increase allocation to equities. Increased equity allocation in 2009, 2013, and 2015, for instance, had benefited investors.