- Oil prices have crashed from $68 a barrel to $50 a barrel and are likely to remain subdued for some time.
- India runs official trade deficit of $58 billion with China. Due to coronavirus-led supply chain disruption, this deficit can come down significantly. This, in turn, will encourage local manufacturing.
- Many global companies would like to diversify their supply chain from China due to increasing cost and heavy concentration. If India can invite all those companies and become part of global supply chain management, then growth will get a big boost.
Foreign portfolio investors (FPIs) have been heavy sellers in last week as they scaled back risk. This might continue until there is a solution for coronavirus. However, this volatility will provide an opportunity for long-term investors to buy, if our experience of SARS, EBOLA is an indicator.
There was a lot of panic during SARS and EBOLA outbreak. However, medical science found a cure and the world continued moving forward. From the lows of SARS, the Nifty50 index has gained 10-fold by now. That said, it is difficult to predict how much the market will go down from current levels, as it will be dependent upon how soon and effectively coronavirus gets controlled.
There are reasons to be a buyer in the current market scenario.
- Central Banks around the world will cut interest rates and pump liquidity to support growth. Some of that liquidity create risk assets inflation.
- Governments around the world will also loosen fiscal policies to support growth. This will increase risk-taking capacity.
In the Indian context, low interest rates globally and high liquidity will result in high flows into our economy and market. From a valuation point of view, small-and mid-caps stocks provide a fair valuation. Quality large-caps are trading at 80-100 per cent premium over their 10-year historical average valuation based on passive flows.
These are testing times and it is natural to wait for clarity to take an investment decision. However, prices can move up sharply once all the clarity is available. It will make sense to follow disciplined asset allocation approach to buy a small amount at every dips.
Nilesh Shah is managing director, Kotak Mahindra AMC. Views are his own.