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We are building in a U-shaped recovery for economy & equity markets: Prateek Pant

Moneycontrol.com, Mar 4, 2020

Most of the measures by the government will have a positive impact in the longer-term, but might not cause a V-shaped recovery in the economy.

Kshitij Anand@kshanand

We are building in a U-shaped recovery and not a V-shaped recovery for the economy and the equity market in the coming quarters, Prateek Pant, Co-Founder & Head of Products & Solutions, Sanctum Wealth Management, said in an interview with
Moneycontrol’s Kshitij Anand.

Edited excerpt:

Q) What is your take on GDP data for the December quarter?

A) The GDP growth for December quarter at 4.7 percent on a YoY basis was more or less in line with market expectations. The government has been taking many small steps to boost growth in the economy.

The cut in the corporate tax rate last year was a major step that should have positive benefits over the long term. The Budget also continued with reform push that should prove to be growth accretive in the long-term, however, it didn’t have much for the immediate term.

Most of the measures by the government will have a positive impact in the longer-term, but might not cause a V-shaped recovery in the economy.

We are building in a U-shaped recovery and not a V-shaped recovery for the economy and the equity markets in the coming quarters.

Q) Coronavirus has become a ‘worry’ for markets from a ‘concern’. What is the way ahead for Indian markets?

A) The impact of coronavirus is very uncertain and one would have to see the extent of its spread in the coming weeks. However, global supply chain, trade, and tourism is likely to be greatly impacted in a world that is as globalised and connected as it is today.

Indian markets could remain volatile until coronavirus is either contained or a cure to the same is invented.

Q) FIIs have pulled out more than Rs 12,000 cr from Indian market in February from the cash market segment. Do you think the selloff could intensify if the situation with respect to coronavirus escalates?

A) FIIs pulled out money after the Budget on Feb 1 as it did not have much for the immediate term, unlike market expectations. This was followed by a lull in FII activity.

In the last few days, the FII selling has again intensified as global risk-off sentiments have increased led by worries around global spread of coronavirus and its impact on economy.

If the situation with respect to coronavirus escalates global risk-off sentiment could worsen. India is unlikely to be spared in a global sell-off environment.

Q) According to a Reuters poll conducted recently, experts have trimmed their target for Sensex, and Nifty for December 2020 on account of global cues. What is your target for the year?

A) Heading into 2020 we were turning optimistic on Indian equities. It seemed like the worst of the macrocycle was getting behind us with improved print on IIP, PMI, Auto sales, etc.

The noise around weak business traction was also reducing incrementally. However, with the situation related to coronavirus worsening, the environment has become more uncertain and one would have to assess the impact on earnings in the coming weeks. If the situations worsen further we would have to taper our expectations.

Q) It looks like money has started moving from equities to safe havens like gold, and other fixed-income products. What do you suggest?

A) We have been suggesting exposure to gold for some time now given it generally acts as a hedge against global uncertainty. Despite the recent run-up, in the current situations, we continue to be overweight gold in our asset allocation recommendations to the client.

We think bond yields could continue to remain low given the muted growth expectations and scare with respect to coronavirus. However, whether equities underperformance fixed income this year would depend on how the situation with coronavirus pans out in the coming months.

Q) What is your take on the SBI Card? It is one of the largest IPO on the D-Street. Should one invest in the IPO or stay with SBI?

A) India’s credit card market remains significantly under-penetrated. This leaves substantial room for growth, along with a superior return on equity. SBI card is amongst leaders in terms of credit card issuers.

While the issue is at a valuations premium, the size of the market opportunity is such that long term investors will be willing to accept the premium valuations in our view.

Q) How should investors play the massive fall which we have seen in the last 15 days to a month? This is time to create long term wealth for investors? What does history suggest?

A) The equity market had not reacted to the uncertainty brought by coronavirus even as other asset classes like gold had reacted to the same.

Hence, the correction in the last few days is mostly equity markets finally waking up to the challenges at hand. As said earlier the impact of coronavirus on the global economy is still uncertain and tough to take a call right now. However, any correction is always a good opportunity for long term investors to build possible.

Q) What should be the investment strategy of investors with respect to Mutual Funds? This is a time usually when investors stop their SIP as nervousness clouds investors’ minds.

A) If the objective of SIP investment is to create a large corpus over a longer period of time, any market volatility always helps in the averaging the cost of acquisitions.

The important consideration should be to choose the right strategies with managers who have track records across market cycles.

Q) Any value buy with respect to stocks or sectors which are looking attractive?

A) We believe that any dip should be used as an opportunity to buy domestic structural growth sectors. One can look at Insurance as a sector, especially life insurance.

Other theme we like is the private corporate banks which are seeing improvement in their credit cycle and lastly, one can start taking selective exposure to domestic quality auto companies which has also felt the brunt in the last couple of weeks.

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