As the share market continues to reel under the growing stress of Coronavirus, frontline shares such as Reliance Industries Ltd, HDFC Bank, L&T and TCS have stolen as much as 30-40 per cent since the beginning of this year.
As the share market continues to reel under the growing stress of Coronavirus, frontline shares such as Reliance Industries Ltd, HDFC Bank, L&T and TCS have stolen as much as 30-40 per cent since the beginning of this year. Is it the right time to buy these stocks battered by the market slump, or will investors only burn their hands amid the carnage? Ajit Mishra, VP Research, Religare Broking, thinks that the attractive valuations warrant a ‘buy’ call but advises investors to do so in a phased manner. In an interview with Kshitij Bhargava of Financial Express Online, Ajit Mishra talks about the movement of banking shares, and tells how investors should act when everything on the share market is taking a beating. Edited excerpts.
1) How long do you see this rout continuing in the markets?
The rout in the markets could continue in the near term until the Coronavirus cases start reducing and the virus is finally contained. Most of the major economies will have a significant impact on their growth and this is leading to nervousness in the markets, which could lead to more outflows. We may witness a breather in the markets on and off but a sustainable recovery may take a while.
2) Even those companies that have strong fundamentals are taking a beating on the stock exchanges. Amid this how should investors act?
We have seen that companies with strong fundamentals and market leadership in their respective sectors are also taking a beating on the exchanges as there are fears that the upcoming quarters will be impacted by the economic slowdown caused by the virus. However, some of these stocks are available at very attractive valuations and some of them are even trading below their historical average P/E. Hence, we would recommend that investors should start accumulating these stocks in a phased manner.
3) Private Banks have suffered quite a loss since the start of this month in particular. Even strong lenders like HDFC Bank are down. Why is it so?
The banking sector was just getting out of the woods as asset quality had started to improve and loan books were also growing at a reasonably healthy pace. However, the virus outbreak has again led to the worries of rising NPAs and liquidity crunch as the economy is going to take a hit in the near term. Further, banks with higher exposure to the distressed telecom sector have been at the receiving end which also includes HDFC Bank. It is also facing a management succession challenge which may have led to more nervousness amongst investors. However, given the recent liquidity measures by the RBI and hopes of more stimulus, large banks like HDFC Bank, ICICI Bank and Axis Bank on the back of strong deposit franchise and better asset quality should be able to tide over the difficult times and therefore investors may accumulate these stocks on dips.
4) Are there any particular sectors that investors should keep an eye out for?
After a significant correction and high volatility in the Indian markets, we would advise investors to keep an eye on defensive sectors like FMCG, Consumer Durables, Paints and Pharma Space as they would be first amongst the sectors to witness a reversal, with recovery in the markets. Going forward, in the medium to long-term, we expect a recovery in the FMCG/ Consumer Durables sectors with improvement in the overall economy and uptick in demand. Also, the paints sector would benefit from lower crude oil prices and recovery in the consumption cycle. Moreover, Pharma counters are expected to be immune to the economic slowdown and they’re also in focus post the virus breakout. Besides, one can also be selective in investing in large private Banking/NBFC space.
5) A lot of stocks are at a cheaper valuation right now. Are you recommending some of those big names that are 20-30% down since the beginning of last month?
We believe many stocks are currently available at an attractive valuation. Stocks like HDFC Bank, Axis Bank, Asian paints, Britannia, Colgate, Dabur, L&T, Tech Mahindra, TCS, Reliance Industries and Ultratech cement are fundamentally sound, have prudent management and have good long term prospects. We would advise investors to buy/accumulate these stocks in a phased manner for building a long term portfolio.