Emerging markets will be hit again if there is a second wave of virus’
How are you analysing the market? The last time we spoke, you were relatively bearish on the market and the Nifty just for indicative purposes topped out around the 10,000-mark. What is the medium-term hypothesis?
We are being helped by global markets rather than our own fundamentals. You saw some good moves yesterday or on Friday in global markets due to a few things. One was obviously the vaccine that was announced although some of them are now saying that the results are a little less positive than people made it out to be. Plus other countries are opening up their economies and at the moment, it is not a fear factory and that probably orchestrates well to make people go out and start spending and feel secure. But I still think it is going to be a U-shaped recovery. Now here in India, most places and most of the economy is still under lockdown; so we cannot really judge what we are going to do without money once we get out of our homes.
Whilst I do like a lot of a medium- to long-term kind that the FM announced for the economy, there is really nothing to help some of those industries which were under a lot of pressure. So my concern for the very short term is that all the cash flow problems which the small and medium size businesses are having will continue and that will put a lot of pressure on the banking industry over the next two to three months. That is probably why you see the Bank Nifty kind of tumbling this month and I think that will continue to be the case. We saw Bajaj Finance’s result yesterday; great set of results but there will still be no go through and that is the best. So if you don’t see growth in the best, then there is always going to be a lot of problems for a lot of the non-banking financial companies below them. I think that will get reflected over the course of the next one month. So I still remain more cautious than at this point with where markets are because we have been reacting to the global market and not by our own fundamentals.
How are you analysing the overall set up for emerging markets where India would also be a part of versus developed markets?
It is still early days in terms of putting risk on the emerging market because the jury is still not out on whether you are going to get a V-shaped recovery globally or not. Therefore, you are going to stick to the more developed markets in terms of your exposure, particularly to the US where you have got many companies which are benefiting from the lockdown. That is why you are seeing those markets do well. We do not really have companies that benefit so much from that in terms of technology.
Obviously telecom and pharma will be the two areas which benefit from the lockdown but otherwise, we do not really have those types of companies or the size of companies to help our markets. So emerging markets unfortunately will remain in the doldrums of under pressure because the global economy has to pick up first and then emerging markets will do well. Therefore, if there is any kind of pick up or concerns of second wave of the virus, emerging market will then be hit again and then you have to look at places like Brazil, Turkey, lot of African countries where a lot of pressure will be in terms of their debt to GDP ratios and that could have an impact on emerging markets.
So India’s weightage as you know is quite high. Once the global markets pick up, then emerging markets exporting countries will probably be the first in line where you want to put your money rather than a more domestically-driven economy like India. As I said, in the very short term there is nothing which will help companies and industries get through this in terms of demand. So we are kind of getting hit on both sides at the moment to be honest.
How long do you think this winter will last? How have you structured your own portfolio? What are the top holdings looking like in terms of the sectors they belong to?
We have different types of funds but if I take the absolute return fund which is more of a conservative protected capital fund, we are sitting on a lot of cash there. I am really using our experience from the 2008-2009 financial crash because we see these markets as more of a trading market in the very short term because you will have the spice of gap up and gap down openings for the market or positivity and negativity depending on each day. So we think it is going to be difficult.
On the long side we have kind of taken more of a barbell approach where we have some of those defensives sectors like telecom and pharma and it is usually mainly RelianceNSE 1.76 % which obviously is a beneficiary of telecom as well. In FMCG and pharma, we have a spattering of other companies which would do well once the economy starts to pick up because if we go back to 2008-2009, you will find that the best performing sectors were obviously pharma and FMCG and little bit of IT. But coming out of that downturn than your best performing sectors were the financials, discretionary spending companies like autos, industrials and energy. So you have to have a barbell approach. It is very difficult to very quickly switch to benefit from changes as the economy starts to improve.
What are your thoughts on the country’s biggest rights issue which goes live today. You have been a very old India watcher. Any thoughts there?
Everyone is looking at Reliance in terms of the only fang stock that we have. I met them in December at a conference and what they said then was that by the end of March, they would be nearly debt-free. Now obviously things have taken over since then. They have virtually stood to that kind of story and managed to do a lot of deals. So that gives you a positive view that their balance sheet is under control, which is key. But it also tells you a warning from the company that if your biggest and supposedly the best is going to cash, they are obviously seeing something which is obviously not so positive in the short to medium term. So that is the message that is being given but obviously analysts will try and buy you value and that is why you have been seeing the excitement. Obviously apart from the marquee investors that are coming in and with the finance minister saying that companies can list overseas, I am sure that listing for Jio might be on the cards. So that is the other thing that I think will keep investors aligned to the positive news flows that are coming from Reliance at the moment.