Length of lockdown to determine performance of asset classes: DSP Investment Managers

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Published: July 9, 2020 1:01 AM

DSP Investment Managers also mentioned that investors should invest keeping in mind all the different probabilities that could play out.

This would be accompanied by excess liquidity due to the fiscal stimulus measures taken by central banks all over the world and this would lead to a V-shaped recovery in stock prices.This would be accompanied by excess liquidity due to the fiscal stimulus measures taken by central banks all over the world and this would lead to a V-shaped recovery in stock prices.

In times of the pandemic, it is hard to forecast how different asset classes will fare. There are two scenarios that are likely to play out as economies start reopening on the basis of the duration of the lockdown, according to DSP Investment Managers.

According to DSP Investment Managers, if there is a short lockdown which lasts between three to six months and the economies start opening up, there will be pent up demand that the businesses would witness. This would be accompanied by excess liquidity due to the fiscal stimulus measures taken by central banks all over the world and this would lead to a V-shaped recovery in stock prices.

Kalpen Parekh, president, DSP Investment Managers, said, “The first scenario is a shorter period of lockdown of three to six months followed by economies gradually opening up. Due to pent up demand and presence of excess liquidity in the market, this scenario has largely played out. This leads to a V-shaped recovery in stock prices. In this scenario, the asset classes that are likely to do well include equity funds and bond funds. Healthcare as a theme is likely to do well.”

Alternatively, if the spread on novel Coronavirus does not get contained and the countries where the spread is not contained start witnessing second or third wave of novel Coronavirus cases, this might lead to further lockdowns. In such a scenario, DSP Investment Managers stated that there could be stress in the financial sector. It would also result in prolonged slowdown and recession, said the asset management firm.

“Another scenario that could play out is an extended lockdown where there are two or three waves of novel Coronavirus. This scenario, where the government resorts to strict measures could lead to an extended slowdown, recession, bear market rallies and longer periods of correction. In such a scenario, asset classes such as a small part of the stock market which has companies with free cash flow will do well. Hedge funds that leverage long and short positions in the market will do well. Debt funds with roll down maturities and gold will also fare better,” said Kalpen Parekh.

DSP Investment Managers also mentioned that investors should invest keeping in mind all the different probabilities that could play out.

Additionally, they should diversify across low correlation asset classes. Investors should also go overweight on particular asset classes keeping in mind the base rates, risks and margins of safety. The fund house also suggested that interest rates are close to their lowest, and so, one must plan for rising interest rates.

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