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Not the time to call market bottom and go all in: Gurmeet Chadha

Keep deploying cash as at every opportunity, says co-founder of Complete Circle Consultants.

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Last Updated: Mar 28, 2020, 02.52 PM IST
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Infosys still remains one of the preferred picks because the digital business will continue to do well.
What are the immediate implications on the economy from the RBI actions?

It is very heartening to see RBI do the heavy lifting. If you look at the fiscal package, stimulus package announced by most countries, Australia’s was almost about 15% of GDP, UK and US announced stimulus between 7-8% of GDP and India’s package was around 1% of GDP. There was some concern about us acting a little late. A large part of that was addressed yesterday by the RBI.

Eventually, once things normalise, capital chases growth. You need to spend right now without thinking too much about the fiscal space. The effective rate cut is more than 75 bps. If you see the liquidity infusion through CRR cuts, through the increase in MSF, it is almost about 3.2% of GDP and that is massive liquidity. This means that your interbank rates will trade well below the repo rate since the reverse repo rate has also been cut. To me it is more than 100 bps rate cut.

It also de-freezes the corporate bond and the CP market. In the last one week, we witnessed a lot of dislocation in the financial market which caused concerns and that got addressed. The immediate beneficiaries would be financials which is evident in the way Bank Nifty has reacted. One must restrict to the top two or three tier banks where the retail loan is the larger part of the bank’s portfolio and keep looking at opportunities. It is going to be a long haul. This is not the time to do bottom calling and go all in. You will keep getting opportunities; so keep lots of patience and keep deploying cash as and when there is an opportunity. It will be testing times for the next 40-50 days.

Would you look at changing your sector allocation let us say two months down the line?

Every crisis has a different set of leaders. In the 90s, it was oil and gas, then it was the IT companies before the tech bubble happened and then it was infrastructure and metals in 2003-07, and after the financial crisis, briefly it was pharma and then financials in India in the last five years. It changes. One needs to do a bit of a rebalancing. In terms of putting fresh money to work, there are three pockets we are advising clients in case they want to deploy additional liquidity. Two, I have been saying this and we have had multiple discussions that debt continues to look very attractive. Despite RBI’s measures, while there is a run of almost 80-100 bps in the corporate bond sphere, the debt still presents an opportunity to make 7-8% kind of yields over the next two-three years which is not bad in an environment like this. So some allocation must definitely go to fixed income. March also gives you an additional indexation if you have a three-year kind of horizon which improves your tax efficiency. We have been also asking clients to do a bit of Nasdaq ETF. Mind you it is an election year in the US, so any revival has to be led by the US. Keep looking at some pockets of consumption, something in telecom and some pharma names in terms of sprinkling around money in a very-very gradual manner and some financial plays including private banks.

One pocket that seems to have managed to sort of not stand out but somewhat hold firm in this scenario is the IT space. Do you think that there is merit in believing that they will still manage to survive this mess? Or do you feel they are as vulnerable at this point?

They might be relatively less vulnerable because you have to study the portfolio well. They have exposures in terms of their client base to oil, utilities, BFSI sectors. IT firms with large exposure to these sectors would get impacted in an environment like this where we are seeing global lockdown. BFSI, especially, the US based clients will have an impact with Federal Reserve cutting rates, offering huge stimulus and QEs that will impact yields of the banking sector. We have seen how US banking stocks have done. Also the deal win momentum we have seen in the IT will come down. It would be neutral and maybe give some cover in terms of the currency movement. IT may be a relatively safer place to be in but it would not be a complete safe haven. One has to be very careful in terms of what one picks in that space.

Infosys still remains one of the preferred picks because the digital business will continue to do well. What will happen as we navigate through this crisis is that people will draw out their strategies and once again the focus on digital will continue to go up. From a long term, yes, but from an immediate price point, I do not think it is a good idea. It is better to be in consumption names. I have been seeing the Nielsen report which came till mid-March and various product sales that have happened in March will provide you with some sense of how things will unfold. Package foods, biscuits, juices and sanitizers, toiletries are the sales which are up 40-50-60%. It is better to be in some of the consumption names, like Dabur, Varun Beverages etc. HUL has now retraced almost whatever it lost. Keep looking at some good consumption names, analyze and research portfolios to more detail and give yourself more time. This market will test you for some time to come.

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