If an investor has good understanding of the market, then cherry picking a few fundamentally sound stocks in the small / midcap space along with bluechip stocks is a good strategy. The blue chip stocks with an established track record will help balance the equity portfolio, Saurav Basu, Head of Wealth Management at Tata Capital said in an interview to Moneycontrol.
Q: How should one build up his/her post COVID-19 portfolio, what are things to look at? What should one include/avoid while building up post COVID portfolio?
A post COVID-19 portfolio should be well diversified. It should include a healthy mix of market linked instruments (mutual funds/ debt funds), fixed income generating instruments (bank fixed deposits/corporate deposit, an life & health insurance policies with sufficient coverage, a small set of funds set aside for emergencies and some cash in hand for short term liquidity needs.
When investing in the share market, investors should also look at the sustainability index of companies. It is even more imperative that investors look at diversification of portfolios ensure that the stocks held are across various sectors. Understanding the dynamics of each stock, the valuation, past performance, future potential are all crucial parameters to look for while identifying stocks. Review your portfolio but don’t panic, the market volatility will take its course to correct & as the pandemic settles, markets will see far more stability.
Since, the market during this time is very volatile, a risk averse amateur investor should avoid very high risk investments. Even if they promise high returns. Now is the time to make calculated and safe investments and to focus on accumulating a corpus for emergencies. Hence, for some time post COVID-19, the investment focus should be on stability.
Q: If an investor aged 35 wants to create a portfolio with Rs 5 lakh and another person aged 30 wants to create a portfolio with value of Rs 1 lakh, what would your advice be?
For Individual A, 35 years – He should look at a medium risk portfolio where around 40 percent of his funds are invested in fixed income generating securities like debt mutual funds for a long term, around 10 percent is cast aside as a contingency fund for emergencies. Further from the remaining 50 percent, a sum of around 10 percent should be left aside as cash in hand and the remaining 40 percent can be invested in the equity market for long term. This portfolio is strictly subject to the short term and long term goals of the individual. This individual should also ensure he/she owns a good quality insurance policy.
For individual B, 30 years – Since this individual is young and has quite a few earning years ahead, he can afford to have a little higher exposure. This individual should invest a little larger sum of money in high risk securities which generate higher profits. It should be noted here, that investments, even if high risk should be done after carefully studying the risk return ratio to avoid unnecessary financial losses. Out of the Rs 1 lakh, he should invest approximately a sum of Rs 20,000-30,000 in debt products, around Rs 50,000-60,000 in the equity in a staggered manner and the remaining should be set aside in the form of cash or fixed deposits for emergencies.
Q: Most of analysts said that leadership gets changed in every Bull Run that starts at the end of every crisis. If yes, then what could be those sectors can emerge as leaders in the next Bull Run?
For a market to move towards a bull run, one would want to align the sectors to the economy and how India charters the path towards growth.
India is a dynamic country, which still has a large part of its population that is young and agile. It is this young population that will help drive demand. Thus, the fundamental long term story continues to hold true and we are receiving the right support from the Government and the Regulator in this direction.
Now that the pandemic has changed the way we live and work, sectors that will enable us to steer through the pandemic and also sectors that will help India sustain in the future should be watched out for.
Digital/ technology companies for example will remain significantly important as these companies will enable businesses to function seamlessly, faster and in a frictionless manner. Of course sectors like healthcare, pharma, FMCG should be watched out for as well.
There are other sectors as well such as financial services, infrastructure which are imperative enablers for growth. Of course, leadership position in the stock market will eventually be based on valuations, potential of the companies to scale and sustain, ownership/shareholding pattern etc.
Q: What could be next key triggers (positive/negative – global/domestic) for the market, especially after the government started re-opening economy in phases?
The pandemic needs a cure, a vaccine that will help people to live normal again. The government, the healthcare system and our COVID warrior ecosystem are working to the best of their ability. While, India is going through its own share of challenges, there will be opportunities that will help us restore normalcy in due course.
Positive triggers that will uplift the economy will be the MSME/ SME sector reviving, infrastructure gaining momentum will be another crucial trigger. In other words, stabilizing India’s growth and ensuring that we as a country are taking the steps in the right direction, will also reflect in the market.
Needless to state that a second wave of the pandemic will be a negative trigger. We hope that we restore normalcy soon and hope the world soon receives a ‘Made in India’ vaccine (India is known for its ability to make a world class vaccines).
Q: Entire banking space has been the leader in the current rally. Do you think this is the hope rally or the sector rally is ignoring risks that are likely to increase (in terms of NPA etc) going forward?
Here, I will answer this question differently. Instead of investing in a particular sector per se, I would strongly urge investors to look at diversification. So diversify among asset classes and also within the asset class. One of the key learnings of investing in a pandemic, is to go back to the fundamentals rules of investing.
So in case of equities as an asset class, look at different sectors as well, so that in case of volatility in a particular sector, the other sectoral stock will help maintain the equilibrium of the portfolio. Also, don’t overlook the importance of insurance, especially an adequate health cover and of course life insurance as well. This pandemic also brings us back to the age old rule of saving for a rainy day, so contingency planning is a must.
Now coming back to your question on banks / financial services being a part of the current / future rally. Here the answer is rather simple, bank / NBFCs / financial services as a whole act as a strong catalyst for the economy to pick up and to regain its lost lustre.
Also, it is important to understand that the pandemic has redefined lending. Lending norms will now be different, with a far more intelligent underwriting model, AI is already being used to get a deeper understanding of how customer data can be used more effectively and efficiently.
Customer profiling is done differently, to understand which customer will be a likely defaulter, which one will be a profitable one and so on. Banks and NBFCs will definitely focus on the quality of a customer and how lending with impact its profitability. Also, Banks are successfully using more and more digital and technology platforms to engage with their customers far more meaningfully.
Contactless banking is here to stay and the pandemic has only reinforced this further. So NPA, alone cannot be the indicator to gauge the performance of the sector in the future.
Q: Despite rally in the broader markets, majority of midcaps and small caps are still 50 percent off their highs seen in 2017-18. Is it the time to pick these midcaps and small caps given the current environment?
The objective to invest should be to chase companies that are fundamental, have a robust balance sheet and the potential to scale up and sustain growth. So again, we would urge investors to not chase midcaps and smallcaps as a category per se but instead go by the potential that each listed company has to offer. The pandemic may have caused valuations to drop, thus making the category attractive, but ideally this approach should be best avoided.
If an investor has a good understanding of the market, then cherry picking a few fundamentally sound stocks in the small / midcap range along with bluechip stocks is a good strategy. The blue chip stocks with an established track record will help balance the equity portfolio. For those who are not comfortable in investing in the market directly then taking the mutual fund route is advisable.
The fund again should be assessed well based on Fund house, Fund performance etc. Reiterating the fundamental rules here again, stay diversified and do not chase short term volatile profits.
Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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Published at Mon, 15 Jun 2020 06:54:11 +0000-#39;Can cherry pick few strong stocks in mid/smallcap space, and bluechips#39;