FROM THE CEO’s DESK
Dear
Investors, “More money has been lost trying to anticipate and protect from
corrections than actually in them.” Peter Lynch. The BSE Sensex had the best
quarter since June 2009 and had risen more than 35 percent from lows in March,
despite Covid-19 lockdown having seriously hampered economic activity. Backed
by better-than - expected economic data in recent months, along with a
proactive government stance and central bank policy intervention coupled with
the resurgence of FPI flows into the domestic equity market,
indicates towards a "V-shaped" recovery. Corrections in the equity
market offer incentives for buying quality stocks at lower valuations. Instead
of worrying, we expect this downturn and the year 2020 from an investment
opportunity perspective as the risk-reward ratio in the current scenario is in
favour of equity investments. In regards to the domestic market, while we expect
second half of FY21 to see a turnaround in production, difficulties may emerge
in Q1/Q2 of FY21 because of inventory disruption and the lockdown. Bold reforms
in areas like land, labour, system liquidity, enhancing business-friendliness
and formalizing the economy would help to re-create a “self-reliant
India". The announcement of the Rupees 21trillion Covid-19 package will go
a long way to help India come out of the slowdown and foster economic growth.
Emergence of robust rural demand (good khariff crops harvest and forecasted
above normal monsoon); a fall in the international crude prices thus relieving
pressure on the CAD, rupee and inflation; a low interest rate scenario will
increase the ROCE for the corporate, all of which will act as a tailwinds for the
domestic equity market. We are positive on private banks, healthcare, telecom
and utilities space while remaining neutral in IT and FMCG. On the equity
market front, we remain optimistic and encourage investors to use any
corrections, as a buying opportunity. On the domestic debt markets front, range
bound movements in the benchmark yield curve is foreseen in near term, with a
gradual shift downwards, though slight uptick of yield in near term due to rise
in fiscal deficit pressure (post announcement of 21tn rupees Covid-19 package
), FII/FPI selling in the debt category and Moody’s downgrade of sovereign
ratings for India, cannot be 4 ignored. Measures like TLTRO, LTRO and
expectations that RBI may come up with OMOs for G-Secs and SDLs will bode well in
reduction of the elevated spreads and limit the spike in yields. In the recent
correction, mid & small caps had taken a beating too. We expect mean
reversal in the course of CY20 which will allow mid & small caps to catch
up on their last two years of under performance vis-à - vis the Nifty-50 index.
We urge investors who are interested
in mid- and small-cap space to look for companies with strong prospects for
earnings growth and with reasonable valuations at beaten-down rates. Attractive
equity market valuations reinforce our view of equity overweight with a bias
towards large-cap stocks and selective multi-cap mutual funds and PMS
(Portfolio Management Services) We suggest 65 percent for Large Cap, 25 percent
for Midcap, 10 percent for Small Cap as part of the equity-sub asset class
allocation. On the debt side, we remain overweight on conservative strategies
and reiterate our focus on risk adjusted return on portfolios of fixed income.
It is suggested that investors buy quality AAA corporate bond funds , Banking
& PSU debt funds while maintaining 5 percent -7 percent as a gold-allocated
volatility hedge.
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