Just a month before the pandemic started wreaking havoc across India, Aniruddha Sarkar took on a new assignment as the Chief Investment Officer & Portfolio Manager at Quest Investment Advisors. Since taking up his new role, Aniruddha saw the stock market climb to all-time highs then drop to new lows and then bounce right back up. In an interview with Kshitij Bhargava of Financial Express Online, the CIO of Quest Investment Advisors shares his investment strategy to dodge the global sell-off, take full advantage of a bull run and sheds light on what could be the next big trigger for stock markets. Here are the edited excerpts.
Now that markets have scaled back sharply from the lows of March, where do you see it heading?
Stock markets are always forward looking by four-six months. Where the markets were in the months of March-April of this year was reflecting the economy and on ground scenario that would be in Q1 and Q2 of FY21 amidst continued lockdown and tepid business environment. Where markets are today, we need to see where the economy and businesses would be in March 2021 and beyond. So, now the question remains: will there be a vaccine in the next six months? Difficult to answer with confirmation but there is a fair amount of visibility that within the next nine months we will have progressed significantly towards some vaccine and will be nearer to bringing it out for the masses. So will economies be better off in 6 months from now, the answer definitely is affirmative, though we can always debate on the scale of recovery to pre-covid levels. Nevertheless, uncertainty remains, especially with the US Elections coming up which I definitely believe will be a big event for global markets in the near term. Secondly, whether the Indo-china tensions will escalate any further considering both seem to have built up their forward positions ready for a long winter, could also disturb the market sentiments. About the economy picking up and corporate earnings growth, there is enough evidence of the trough being behind us and it can only get better from here. Hence, I’m cautiously bullish on the markets but these events need to be closely watched.
How does the Mid and Small cap space look at this juncture? Some believe it’s overvalued and have run up a lot and should be avoided
Overvalued and undervalued stock ideas can be found across different market capitalizations at all times. To answer your question, the answer would be both a yes and a no. Some stocks surely look too stretched on the valuation front, because too much money has been chasing few of them for the last few months. But then there are enough companies and sectors in the small and midcap space that are extremely attractive on valuation front and business growth potential and I see decent risk-reward payoff in these companies with a 24-36 month investment horizon.
Where do you see the next big triggers for the Indian economy and our markets
There are couple of triggers for Indian economy like the recent Agri reforms, labour reforms, etc, but in the medium to long run, I believe how India is able to establish its position in manufacturing and other sectors under the China plus one strategy would be a key trigger for major upside for the Indian economy and our markets. China is irreplaceable at this point of time and will continue to be a dominant player for long. We all have to co-exist. However if we are able to even bite away say 10% of the market share from them in various industries, it will itself be massive for India considering our current small scale compared to them. I feel ‘Atmanirbhar Bharat’ is the rebirth of ‘Make in India’ and has been launched at the right time when the world is looking at alternatives to China. Different sectors will take their own time to become a formidable name on the global stage. In some sectors like Pharma, Specialty Chemicals, textiles, Auto ancillaries, we already have a head-start and expertise and now need the right push from the government to take our companies to a global scale and size. Whether we can replicate our IT services success needs to be seen.
You seem to be very bullish on Pharma – Speciality Chemicals sectors. What’s your take on it currently?
Pharma and speciality chemicals space is where we have been bullish since the beginning of the year and that makes up roughly 25% of our portfolio. Self-dependence and export of API and specialty chemicals is something the government is keen to push forth with some incentives and we believe we have the right ingredients for the same. Currently India imports nearly 70% of its API requirement from China which is bound to reduce to less than 50% in coming years. Many pharma companies are doing backward integration and building scale there. The pandemic has made both the government and the pharma companies realise that you cannot have over dependence on imports especially from China for something which is so critical for healthcare.
What has been your investment strategy during the pandemic?
There has been a paradigm shift in the way global economies and markets work these days and this has been visible over the last few years. I am of the view that agility has become an important differentiator in fund management and one needs to be flexible with keeping higher cash levels too in portfolios if the situation so warrants. In line with these philosophies during the last 6 months we have been actively maintaining higher cash levels and also deploying the same at opportune time into attractive companies. Also taking profits off the table when something moves ahead of its expectation in a short span of time is something we have been adopting at Quest. Though we believe in long term investment and that remains our core philosophy, we believe in a new variant of long term investment which is active long term investment as compared to traditional passive long term investment.
Considering now that a second wave is hitting many countries, what would be your strategy or advice for investors?
We do not see any major concern emanating from the second wave of Covid-19 cases at least on the economy as it’s now evident that there would not be a complete nationwide lockdown anywhere but more on-off lockdowns in pockets of high cases surging or declining. We continue to believe that the next 6 months will continue to see extreme volatility in both global and local markets and one needs to tread the same with caution. Being agile will get rewarded and also one needs to take advantage of opportunities when volatilities sky rocket.