#39;Great time to purchase high quality stocks, though economic slowdown is inevitable#39;
Investing in high-quality stocks or mutual funds is a good idea. Investors should re-look their asset allocation and tilt them more towards equities with at least a 3-year view, said Raghvendra Nath, MD at Ladderup in an interview to Moneycontrol’s Sunil Shankar Matkar.
Q) COVID-19 has hit global markets hard. Indian equities have also ceded over 40 percent. Your thoughts?
A) These are unprecedented times. The modern world has never seen a pandemic of this scale. All past outbreaks were controlled in a very short period and the contagion was limited to a few nations. This is the first time that almost the entire world has been consumed by a pandemic of epic proportions. And it is just the beginning. No one has the slightest clue if the outbreak shall be contained in a few months or it will drag on. The speed at which it is travelling is also scary and looks like in a matter of few weeks more than a million could be impacted.
The markets are reacting to a situation that has the potential to push the global economy into a recession. The slowdown has already started in travel, tourism, airlines, malls etc. and may extend to many other sectors.
From the market’s perspective, equity markets have nosedived with an acceleration never seen before. And it looks like a lot of the future uncertainty is already priced in. Any deeper corrections would be driven by how the world is tackling the COVID-19 and the extent of fiscal and financial stimulus of various governments.
Q) Do you think the time is ripe to start buying stocks or should one wait for the dust to settle?
A) I think it is a fantastic time to pick up some high-quality names which are now available at a deep discount.
My rationale is that the economic slowdown is inevitable, but it is not going to be for very long. Unlike the past, there were no asset bubbles around the world that have contributed to the crash. The severity of the market correction is purely linked to fear of the pandemic consuming the world. There is no doubt that with most countries going into lockdowns, most economic activity is going to get impacted. But once the outbreak is contained (flattening of the curve), the activity would also come back to normal gradually.
Investing in high-quality stocks or mutual funds is a good idea. Investors should re-look their asset allocation and tilt them more towards equities with at least a 3-year view.
Q) What sectors or stocks are you looking at?
A) The value is everywhere now. I don’t think there is any sector that has been spared in this fall. Some of the favourites of the market have also taken a severe beating. In this kind of scenario, where some of the best quality names are available at a deep discount, buying them is better than hunting for the next big sector. Do value buying into high growth stocks, so that whenever the market volatility eases out, these stocks would be the first ones to bounce back completely.
Q) How should investors view the current scenerio especially since a lot of wealth was lost in a matter of weeks?
A) This is a very valid question. It is painful to see your wealth getting eroded substantially in a matter of days. It is even more painful to know that someone else encashed early on. However, my experience from the past is that in most such situations, once the panic is over, the reversals are also as quick.
There is a lot of merit in staying invested right now. Even if it takes a year to come back to normalcy, the period after that would more than make up the losses.
Q) The virus is spreading rapidly in Europe and US. What is your global growth projections?
A) There is no doubt that the global growth shall almost disappear in the next quarter as the consumption has sunk and the global trade is restricted.
Something similar had happened in India during the demonetisation. That time it was the availability of cash. Soon after demonetisation, we saw a collapse of economic activity. But once the new cash was brought in the system, we saw that the normal economic activity was restored in a matter of weeks and not months. Something similar is likely to happen with global growth too. Yes, right now with no visibility on the end of the outbreak, everyone is seeing only negative. But the moment there is a realisation that the pandemic has been contained, the growth is going to bounce back.
Q) Gold is also taking a hit, US bonds have succumbed too. Why are traditional safe-havens also suffering?
A) In such unprecedented times, most institutional investors want liquidity. So, the selling of even safe-haven assets like gold is being witnessed. The other argument to support the falling gold prices is the substantial dip in gold purchases during these times.
Q) Foreign investors have withdrawn over $ 9 billion in equities from Indian markets while domestic investors have are pumping in money. Your thoughts?
A) Most FIIs price their risk globally. Unlike them, the Indian DIIs are only focused on investing in India.
If you were to ask any MF fund manager, he will say that he raised his cash levels in the last month. What stocks mean to a fund manager sitting in India, countries mean to an FII which is looking at a portfolio of global assets.
The other reason for buying y DIIs is that a lot of people add money to their mutual funds when the markets dip. That is why we generally see contrasting behaviour between FIIs and DIIs during a period of high volatility.
I don’t think we should consider regular buying or selling decisions from FIIs very seriously. India has one of the largest equity markets in the world and extremely well regulated. The FIIs have no option but to remain strategically invested in India.
Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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