With fresh concerns around COVID-19, this scenario is likely to remain in play. Moreover, with the US elections this year, the noise is likely to be high, Vinay Khattar, Head, Research, Edelweiss Wealth Management said in an interview to Moneycontrol’s Sunil Shankar Matkar.
Q: Do you think it is really possible for the United States to start a fresh tariff war with China given the current health and economic situation?
The possibility of trade tensions continuing, never really ceased. The truce that we saw in the last quarter of 2019, had both US and China keeping their part of the agreement. With fresh concerns around COVID-19, this scenario is likely to remain in play. Moreover, with US elections this year, the noise is likely to be high.
India didn’t benefit immensely, barring a few small wins in say the chemical sector, during the last round of trade tensions between US and China. India has the potential, size and ability to benefit, but requires reforms at the factor level.
Land and labour laws, credit infusion, trade agreements and massive logistical changes, are key to helping India gain due to manufacturing moving out of China. Many countries and global companies want to move a part of their manufacturing and supply chain out of China, and India is an ideal destination once reforms are in place.
Q: Pharma has been an outperformer in the last one-and-half-months. Do you think the rally is sustainable?
Yes, the rally was quite sharp, most of the companies have moved up. We have a very selective approach in pharma, over the past 2-3 years and would continue to believe so. This time though, leaders will be different hence we recommend to look at turnaround stories, domestic formulation stories (as that will drive growth) and biosimilar, which is considered to be a mega theme and possible gamechanger.
Q: The market made an attempt to move towards 10,000 on the Nifty in April. What are your overall thoughts on the market for next year?
Stock indices continue to see abnormally high volatility. In fact, India VIX continues to trade above the 40 mark, in one of its longest runs at such levels. This indicates that markets continue to remain in a state of high uncertainty. Given the wide array of possibilities for how economic growth and earnings will pan out in the next year, this volatility is here to stay for a while. In fact, the Nifty may make an attempt at the five-digit price levels.
However, we believe it is apt to take a valuation call at this juncture as there are a wide variety of sectors and stocks available at attractive valuations. In some cases, valuations are as attractive as they were in 2009. Deploying a small part of your investible surplus each week, in a staggered manner, appears to be the strategy that one should follow.
Q: What are top three themes to bet on right now?
One broad theme at play is companies having strong balance sheets. Talking about sectors, we like Chemicals, Pharma, and select consumption companies. For Chemicals, clearly the theme is the shift of business from China to India, which continues. One more important thing is that few large Chemical companies have scaled up their capabilities over the last few years, making this theme even more interesting.
Pharma as explained in the earlier question, is looking interesting. However, there won’t be one common theme. It will be specific to companies building capabilities and being reasonable on valuations. Select consumption companies like Asian Paints, Astral Poly, where sales won’t be lost much and will recover strongly post the crisis, with strong balance sheets, are also preferred.
Q: Auto has taken a huge beating given the slowdown in the sector. Do you think one should look at auto now?
We expect that in a realistic scenario, automobile sales are heading towards steep decline in FY21. For example, for 2-wheeler (-18 to -19 percent), passenger vehicles (-20-22 percent) and commercial vehicles (-20-22 percent). In CVs, MHCVs will be most affected. Hence, in absolute volumes terms, PV and CV, will be near decadal low numbers for FY21 (i.e. 2.2 million and 0.56 million respectively), similar to what we have seen in FY10. And 2-wheeler will be at FY13 levels (i.e 14.1 million).
We believe large ticket size discretionary spending will be avoided for some time till income levels recover and there is some sort of revival in consumer confidence. Impact on rural economy is expected to be comparatively lower than urban, given two good crop seasons, back-to-back i.e. decent kharif earlier, bumper rabi now, coupled with expectation of normal monsoons this year gives something to cheer about.
Q: Have you seen any change in the behaviour of retail investors in the current COVID-19-led fall?
New investors who have entered the markets through the SIP route, are more patient and sticky. SIP flows have remained robust, even in the face of huge uncertainties. For investors who are directly entering the market, the situation is more fluid.
We see the spike in demat accounts more as a function of a need to participate in various products like IPOs and portfolios, rather than a surge in demand for direct equities. A stable asset allocation model for retail investors comprising various asset classes is more suitable and advisable.
Q: The market has been eagerly waiting for a bigger stimulus package which can help the economy revive faster. Do you think it is possible for the government to announce a big package?
As per the sound bites from various government agencies and spokespersons, the government is likely to take a measured approach. We are likely to see smaller and spread out packages, which could be more targeted. The efficacy of these packages will be dependent on the details. We expect some of these announcements to come to fruition in the next few weeks.
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Published at Tue, 12 May 2020 05:51:35 +0000-#39;US-China trade war noise likely to be high given US elections this year#39;