#39;Given the Coronavirus threat, investor should put money in domestic consumption stocks#39;

February 14
14:02 2020

The Budget and the RBI policy have put in place a few good measures to put the economy on an accelerated growth path. Hence, we are quite confident of economic recovery and market direction over mid to long term,” Pankaj Bobade, Head- Fundamental Research, Axis Securities said in an interview to Moneycontrol’s Sunil Shankar Matkar.

Edited excerpt:

Q: As te Q3 earnings are largely done with, what are your thoughts?

So far, the results for Q3FY20 have been better-than-expected from the earnings growth point of view. It looks like the drought of earnings faced so far is coming to an end, though a part of it is coming through the corporate tax cuts. As the economy expands at a faster pace, it would lift the consumption-led demand. To start with, the rural demand is expected to improve with a good Rabi crop along with the measures taken by the government to improve the income levels in the rural economy.

The Budget and the RBI policy following the same have put in place a few good measures to put the economy on an accelerated growth path. Hence we are quite confident of economic recovery and market direction over mid to long term.

Coronavirus threat, however, may impact supply chain disruptions across some industries in the short term and as companies look for alternative sources of manufacturing, it will provide opportunities to Indian manufacturers to fill the vacant space left by the Chinese.

Q: What are those sectors/stocks that will get benefited from fast-spreading Coronavirus?

Some key sectors/industries that could benefit from the Chinese shutdown are ceramics, homeware, fashion, lifestyle goods, and textiles. In fact, some of these companies which export these products have already said that they have received greater inquiries and orders from European and US unions. However, setting up capacities to meet the demand may be a challenge and a risk as Coronavirus impact would be short-lived as of now.

Q: What should be the portfolio strategy of investors post Budget 2020 sector-wise?

Sectors that will benefit greatly from Budget 2020 and RBI February policy are 1) Agriculture/Rural economy 2) Infrastructure 3) Real Estate 4) MSME’s and Housing Finance companies. Quality stocks in these sectors should be a part of one’s portfolio.

Also, given the uncertainty associated with Coronavirus, an investor should position himself in sectors driven by domestic consumption; though impacted by disruption from any negative news from China, the recovery would be swifter than the general markets. Commodities and companies solely dependent on Chinese supply chains for their raw material needs should be avoided

Q: Will the market remain rangebound in the coming months? Does that mean it would be a market for mid and smallcaps all than large caps?

Well, it is difficult to predict market movement in the short term and the next few months, but quality mid-cap and small cap companies do look poised for growth as they have reported decent earnings growth. Going forward, with improvement in sentiments along with the earnings, the outlook for the mid and small caps looks positive.

Those companies which are showing remarkable growth in profitability and are trading at relatively cheaper valuations are likely to gain prominence in rerating. Overall, the largecaps are likely to continue being expensive while the valuation gap between the large caps and mid & small caps would be bridged over time.

Q: Do you expect major rate cut transmission this year, after RBI indirectly asks banks to cut lending rates?

With the low-cost funds made available through one and three year reverse repo window to the banks in the last policy meet, the RBI has nudged for transmission of the repo rate cuts enacted so far to the end consumer. It will help banks to reduce the cost of funds for the long term as they can now borrow at the repo rate which is lower than the cost of funds for them.

This step also intends to give assurance on liquidity to banks, which should encourage them, especially when they see deposit rates are ranging downwards. They have injected nearly Rs one lakh crore in the market which will enable banks to reduce lending rates and lead to greater transition.

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