Amar Ambani, Sr. President & Institutional Research Head, YES Securities Ltd. is of the view that nothing has changed fundamentally from a long-term perspective, in strong franchises like say, HDFC Bank or Reliance Industries. He says, it’s not unusual to witness 40-50% stock declines from highs, a few times in a space of three-four decades. These are bargain prices for a long-term investor and you wouldn’t get such levels unless there’s bad news impacting the economy.
While the US President, as also the Australian PM, have publicly acknowledged that full-fledged virus control may not be possible any time before May-July 2020, the stimulus of rate cuts and QEs has been unleashed across the globe, but desired results are yet distant possibilities, given the show-stopping nature of this pandemic. Unlike a financial crisis, which doesn’t cause work disruption, the need for social distancing in case of Covid19, has stalled every endeavor including financial activities, both supply-side and demand-side. Given low interest rates and record-high debt levels across the globe, our ammunition is severely constrained. Global GDP growth would shrink by 2.5-3% in the first quarter and if the pandemic continues unabated, de-growth may even be seen in the subsequent two quarters, Ambani said
There are key positives like India’s low reliance on the outside world for its growth and benefits accruing out of falling interest rates and low oil regime. Indian market has been consolidating since the year 2018, so we’re better-placed time-wise and value-wise.
This is the best buying opportunity that has presented itself since 2008-09. However, one can invest at these levels provided 1. one can set aside 3-5% cash for emergencies, 2. One is willing to digest further short-term drawdowns, 3. One is willing to stay invested for a minimum of three years, and 4. the asset allocation leaves room for further stock investments. If any of the above do not apply, then there is no rush to buy now. The market could stay irrational longer than we presume. The Nifty can head lower before it finally bottoms out and it is also possible that we remain in sluggish territory for many months this year.
Of all the above, the point about asset allocation cannot be emphasized enough. If one has under-allocated to equities, this is a god-sent buying opportunity. Staggering the purchase over the new few weeks would be the ideal thing to do. Notably enough, this is a good time to buy tax-free bonds, given the likelihood of slashed systemic rates, in response to the crisis. If an investor has an ongoing SIP, closing it would amount to sacrilege. On the contrary, one should increase the amounts if possible.
Coming to stock selection in the present environment, the keyword is elimination. For direct equity purchase, avoid sectors with global supply-chain linkages like automobiles and those linked to travel restrictions like airlines, amusement parks, casinos and hotels. Some of these players may need to be bailed out by the time the crisis is over. Leave out stocks linked to Oil and Chinese markets at this point. Also, foreign fund and ETF outflows have made large caps with high P/E multiples of 60-100x significantly risky,” Ambani said.