“I would be extremely weary of the US markets from a risk-reward perspective today,” said Naveen_Chandramoh.
Naveen Chandramohan, Founder & Fund Manager of ITUS Capital, advised that an investment strategy should be formed on the basis of sound fundamentals. “When volatility in market conditions result in price drop, it gives a wonderful opportunity for investors to deploy capital – this is how we have always approached managing money,” he said in an interview to Moneycontrol’s Sunil Shankar Matkar.
He still views the economic growth in FY22 to be robust. “One must not forget that we are coming out of a low base.”
“If we are discussing a realistic easing of lockdown in June and opening up of states, I believe flows will continue to be robust. If I was a betting man, I would place my wagers on Sensex crossing 55,000 in 2021,” said the Founder & Fund Manager of ITUS Capital.
Edited Excerpt:-
Q: Do you think the risk of COVID-19 is receding with the consistent fall in daily infections and expected increase in vaccination going forward?
The risk of COVID-19 is what I would call a ‘known unknown’. Data shows that once an individual is vaccinated with 2 shots, the rate of mortality is extremely low (less than 0.2 percent). Mumbai has shown the rest of the states the blueprint as to what needs to be done to reduce the increase in infections. There certainly is fear today, and that is justified as we are dealing with human life here. However, we are in better control of the situation. I certainly do believe the vaccination rate will pick up and the situation across the country should improve from here. There is strain on the healthcare infrastructure, however, the situation is improving daily.
Q: Given the consistent fall in COVID-19 cases and fall in active cases, should one change the investment strategy now and what are the sectors to look at for investment now, and why?
We are not changing our investment strategy because of the spike in COVID-19 due to Wave 2, and neither are we making any changes if we continue on our path to recovery and normalcy. An investment strategy should be formed on the basis of sound fundamentals – when volatility in market conditions result in price drop, it gives a wonderful opportunity for investors to deploy capital – this is how we have always approached managing money.
We continue to believe in 4 broad themes, which have tailwinds in our view today – pharma (with a domestic manufacturing focus), specialty chemicals (with a R&D and IP Focus) manufacturing, IT and Technology, Non-lending financials (AMCs and Financial infrastructure). We believe these are exposures every investor should own through the best managed companies in the sector.
Q: With the expected easing in lockdown from June, do you think the market will be back to record levels soon? Is there any chance of 55,000 on the Sensex in 2021?
If we are discussing a realistic easing of lockdown in June and opening up of states, I believe flows will continue to be robust. It’s imperative that investors place less emphasis on absolute levels of the index and focus on owning good cash flow generating businesses. While certain themes today may have momentum, it’s important to realize that one need not be present in every party.
If I was a betting man, yes, I would place my wagers on Sensex crossing 55,000 in 2021.
Q: Do you think with easing lockdown restrictions and opening of economy, the earnings upgrade will be more than downgrades in coming quarters and there could be restoration to previous FY22 earnings estimates?
The temporary demand pause we are seeing for the month of May should have slightly longer ramifications going into June too, as we would want evidence (as a consumer) that the opening up of the economy is real. Prior to the second wave, the FY22 earnings as an index was aggressive and we could see some disappointments in certain businesses and sectors. I believe the performance of the markets will be driven by flows than by earnings upgrades in FY22.
Q: MF inflow into equity declined in April compared to March. Do you think there could be strong MF inflow going forward with the hope of economic recovery going forward?
Considering the stop-start nature of the economy, one should not be surprised in the volatility in the monthly flows too. If we look at a quarterly trend of inflows, you would see a more robust number in terms of equity inflows. I expect this to continue going into the rest of the year. The participation in direct equities from retail money has seen a consistent increase in the last 2 years – seen through the increase in demat accounts too. While active MF managers may have underperformed in the last 3 years, I believe the trend in MF inflows will continue on an upward trend.
Q: With the expected easing in lockdown, do you expect double digit economic growth in FY22?
I still view the economic growth in FY22 to be robust. One must not forget that we are coming out of a low base. Structurally the dip due to the lockdown should not materially affect our economic growth – the government will have to be proactive here and continue its spending on infrastructure and easing the operating conditions for foreign Investments. Considering our balance sheet is relatively sound, we could afford a slightly higher than deficit this year by front-ending spending.
Q: Should the market be really more worried about risks of inflation (domestic and global), interest rate hikes, bond yields and US dollar now?
The risks of inflation at a global level are real. The Fed seems to be operating from a different mindset when they view the inflation as transitory. The retail sales in the US saw a consistent increase over the last three years and the absolute number this quarter was at a record. Under this macro environment, the Fed continues to provide a $ 120 billion of money supply per month. This has created asset inflation across equities, private investments, crypto, NFTs – while euphoria can last longer than humans can imagine, the policy adopted by the Fed is bordering trouble today.
I would be extremely weary of the US markets from a risk-reward perspective today. This has an immediate impact on the US Dollar too, and the Fed is staring at an interest cost which would be around 29 percent of the GDP one year from now. This makes me structurally bearish the US Dollar, and the risk reward favours a short.
I still do not believe we are close to an interest rate hike in India. The RBI would want to keep the interest rates low for longer – while the inflation pressures are real, I do not believe it’s a concern yet as I do not see wage inflation pick up yet in India.
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