With social distancing and work-from-home becoming the new normal, the coronavirus lockdown is changing human behaviour and consumption patterns. A few sectors that might get their fair share of attention as a result of this change include; telecom, insurance, and healthcare, according to Devarsh Vakil, Head – Advisory, HDFC Securities. In an interview with Kshitij Bhargava of Financial Express Online, Vakil not only highlighted what sectors might benefit in the near future but he had a word of advice on what the earnings season this fiscal year might look like. Here are the edited excerpts.
- What is your view of the situation now, will equity markets continue their steady climb now or are we still in shaky waters?
Lockdown to contain the COVID-19 outbreak means around 75 per cent of the economy is shut, resulting in a direct output loss of over 4 per cent. It is not going to be a smooth ride, we will have intermittent corrections at the broader index levels. There will be rotations within different sectors and churn within the sectors.
- People have been saying that the way we live and act will change in the post coronavirus world. This surely means there will be new sectors or companies that will take the lead from here on forward. Is that something you believe in? If so what sectors are you watching?
We are watching out for a few winners in this mayhem. Internet and data services – Work from home and social distancing has given a huge fillip to data usage. We believe telecom service providers will benefit from this trend. Healthcare service and Insurance providers may also get higher attention in post COVID world.
SMEs and retail borrowers are under stress – may need immediate liquidity to kick business post lockdown. Gold loan companies are worth keeping on the radar.
- How are earnings going to be affected throughout this fiscal year? Is there a recovery in sight?
Earnings estimates have been revised downwards significantly for FY20E and FY21E post-COVID-19. Earlier, the street was estimating around 20% growth in Nifty EPS for FY21, however, post corona now it is expected to grow in low single digit. NBFCs, Pvt sector Banks, Oil & Gas, Auto, Retail sector earnings will see meaningful deterioration.
- What are your views on PSU stocks right now?
PSUs are in multiple industries across different geographies, we should not paint every company with the same brush. Among the PSUs, Oil & Gas and Metals may not see meaningful upsides in the short term. The government is hard-pressed for resources and that means they may have to look at divestments and strategic stake sale seriously. We will be looking at investment opportunities in such companies.
- FIIs have pulled out a lot of money, how long do you think that will take to come back to Indian share markets?
FII have sold stocks worth Rs 66,000 crore since early January. They were facing redemption in emerging market funds that has led to a large amount of selling across emerging markets. Governments around the world have been announcing a series of packages over the past two months, scaling up the quantum of support substantially to tackle the evolving crisis.
US central bank – the Federal reserve and federal Government have been quite active in providing liquidity to markets. They have already announced a stimulus worth more than $3 trillion to support the US economy. European Union is also working on providing fiscal support to its member economies. Such large support is helping stock markets around the world recover and bounce back sharply from March lows.
Compared to the rest of the world, the Indian Government has been proactive in taking measures to fight the spread of the virus. We were early to start screening of air passengers and also to close international flights. We have relatively fared better in fighting the spread of the virus.
While it comes to the economic stimulus package, India has been slow, having regard to the fiscal compulsions and so far RBI has taken upon itself the mantle to bring succour
Most parts of the world would be reeling under severe recession this quarter. Countries that can manage to show some semblance of growth will attract a lot of capital. India has that opportunity. It needs to be seen how this situation pans out.
- FTSE Russel and MSCI are expected to increase India’s weightage in their indices in the next revision respectively. What kind of inflows can we expect from these moves?
India’s weight on the widely-tracked emerging market (EM) indices may increase as a result of rebalancing and change in foreign investment limits. News reports suggest the potential to attract over $7 billion in foreign inflows, both from actively and passively managed funds due to these changes.
- What has your investment strategy been during the freefall of equity markets that we saw in March and during the lockdown?
This is a good time when investors undertake an asset allocation review. In case they are overinvested in equities, correct it on bounces to fair allocation or even under-allocation. In case they are severely underinvested in equities, start a systematic investment plan (SIP) in mutual fund schemes or in exchange-traded fund (ETF) basket or in direct stocks for a period of 8-14 months. The ultimate winners out of this turmoil may not be the same as those in your current portfolio. Capital protection is more important than returns for the ensuing few months.