‘A fresh bull market in the near future unlikely’

After a precipitous fall from the top, the markets across the globe have been supported by stimulus from central banks. In the Indian context, the market is not factoring in a lockdown beyond 21 days as of now, S NAREN, executive director and chief investment officer at ICICI Prudential AMC, tells Puneet Wadhwa. Edited excerpts:

What’s your view on the recent measures announced by the government and the Reserve Bank of India (RBI)?

Central banks around the globe are adopting a “whatever it takes” approach to provide the required boost to the economy in this period of crisis and the RBI was expected to follow suit. Positive macroeconomic indicators, spread of India’s interest rates above global interest rates, and lower inflation expectations provided the RBI and the government large headroom for giving monetary and fiscal stimuli. Also, the RBI has $480 billion of foreign exchange reserves, which puts India in a comfortable position in terms of foreign exchange reserves.

Have the markets overreacted to the Covid-19 pandemic?

The markets have reacted sharply to the developments related to the coronavirus (Covid-19) pandemic on account of fears of its potential impact on both domestic and global economies. Currently, equity valuations are cheap and investor sentiment is that of panic. Historically, such times have proven to be attractive for long-term equity investing. It’s a once in a decade opportunity. The last time investors got

such opportunity was in 2001 and then in 2008.

Do you expect another wave of selling once the health scare abates and companies assess the impact?

The market is in oversold territory and indicating that it is time to invest in equities. As the news flow on the Covid-19 pandemic improves, the markets are likely to improve, too. The risk factor to this assumption is that the market is not factoring in a lockdown beyond 21 days. That said, we do not know how long the impact of Covid-19 pandemic will play out. Disruptions are playing out both on the supply and demand side – so a broad-based slowdown in the near future is likely. Corporate India, too, will come to terms with this development and its impact will be visible in the earnings over the coming quarters. So, a fresh bull market in the near future looks unlikely.

Overweight and underweight sectors?

In any market bottom, the news flow is always extremely negative and one can never predict when the market will bottom out. That’s always known in retrospective. Even the debt market is attrac

tive currently and presents an interesting investment opportunity as there are reasonable credit spreads. Overweight on metals, mining, telecom and power. Consumer nondurables, autos and banking are the pockets we are underweight on.

What about the banking sector in the light of recent developments and the battering seen in this correction?

Valuations across the banking space — private and public sector — have improved significantly. We have always been selectively positive on themes like corporate lending banks, good liability franchises, and customer-centric nonlending franchises and have improved exposure to select banks that have good asset-liability management, high current account savings account (CASA) franchise, and broad-based financial services presence. Non-banking financial companies (NBFCS) might see a moderation in loan growth, but we are positive on select gold financiers and insurance, i.e. segments which may benefit from India's long-term structural growth.

Are there any lessons from the earlier market corrections that investors can make use of now?

The lesson from 2008-2009 is that while earnings would get cut, it is not of significance as the markets will look beyond it. One has to remember that share prices have corrected 30–40 per cent. There is no logic in looking at earnings when share prices have faced such steep correction.

Volatility is a part and parcel of equity investing. Losing confidence in an asset class because of its inherent nature is uncalled for. India is in a very favourable position on the macroenvironment front. Investors should take this opportunity to invest aggressively into equities. Historically, it has been seen that whenever the markets corrected, those investors who stayed put have benefitted exponentially.

Are you facing any redemption pressures?

Before the outbreak of the pandemic, the Indian market valuations were lofty. Therefore, we were advising investors to opt for dynamic asset allocation products and debt schemes. There has hardly been any redemption pressure. Indian investors have matured since the last crisis seen in 2008. We are buying into this correction. Several names across sectors have corrected significantly and are available at valuations which are even lower than 2008 levels.

Outlook for systematic investment plan (SIP) flows?

For the last 12 months, inflows into SIPS have averaged over ~8,200 crore. This trend is likely to continue, as SIP has emerged as retail investors’ preferred route to invest in mutual funds. In the near-term, there could be some blips but the general trend we believe will remain positive.

CURRENTLY, EQUITY VALUATIONS ARE CHEAP AND INVESTOR SENTIMENT IS THAT OF PANIC. HISTORICALLY, SUCH TIMES HAVE PROVEN TO BE ATTRACTIVE FOR LONG-TERM EQUITY INVESTING