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One has to be selective while buying stocks, says Rajeev Thakkar of PPFAS Mutual Fund

We spoke to Rajeev Thakkar, CIO, PPFAS Mutual Fund, to get some perspective. Thakkar, known for maintaining a cool head, says, “If you have stuck to your appropriate asset allocation, that is great. You don't need to do anything.”

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Last Updated: Apr 08, 2020, 12.42 PM IST
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The mood may be cautious on Dalal Street. However, many mutual fund investors view the sharp fall in the stock market due to the Covid-19 crisis as a once in a lifetime opportunity to get rich quickly. ETMutualFunds.com spoke to Rajeev Thakkar, CIO, PPFAS Mutual Fund, to get some perspective. Thakkar, known for maintaining a cool head, says, “ If you have stuck to your appropriate asset allocation, that is great. You don't need to do anything.” Edited interview.

This is different – it is a phrase most market pundits use to describe the situation in the market during the COVID-19 crisis. As someone who has been around for almost two decades, what makes the current situation very different and grave?
There are similarities and differences in each bear market. The similarity is the widespread fear and panic, margin calls, forced share sales, illiquidity in perceived lower-quality bonds and shares and so on. Differences are usually there in terms of a proximate cause of the fall in stock prices. In 1992 it was the securities market scam, in 2007 it was the subprime mortgage crisis transforming into the global financial crisis. This time the proximate cause is the COVID-19.

One significant difference is that this time around the crisis has not originated in the financial sector but on account of biology/virus. The reason why this is grave is that people's health and lives are at stake.

Entrepreneurs and investment managers may be scared, but many investors are looking at the current fall as an opportunity they will get once a life to buy stocks cheaply. They believe the market might bounce back soon. Do you share the optimism?
I am an optimist. We are seeing signs of daily new cases and deaths because of COVID-19 in the most affected countries coming down. Production of ventilators and personal protection equipment for healthcare workers is going on at a war footing, drug and vaccine trials are ongoing and there is some expectation of warmer weather in the summer helping.

Once widespread lockdowns end, we will gradually open up, with social distancing measures and face masks in place.

However, the optimism needs to be tempered with the fact that very leveraged businesses with stressed balance sheets may not be able to survive the crisis. Some sectors related to travel, hospitality and outdoor entertainment may see a significant impact for a relatively longer period.

Stock indices will eventually bounce back but each company may not reach the past highs. One has to be selective while buying stocks. Valuations, of course, in general, are attractive.

The market bouncing back every other day by 1,000 points has given false hope to many investors about a possible fast recovery. How would you describe the scenario?
The speed of recovery may significantly differ across sectors. Some sectors will bounce back very quickly whereas others like airlines and hotels will take much longer. I am not a proponent of buying shares in the expectation of quick gains. Only investors who have a minimum investment period of, say, five years, should venture to buy stocks. Overall the economic recovery will be gradual.

Do you share the view that individuals should take stock of their personal finances at this juncture rather than rush to deploy money in the stock market for quick gains? There could be income loss, a health scare, etc in the coming days.
Asset allocation decisions are independent of market conditions. Those whose income could be at risk in the coming days or those who do not have an adequate corpus for emergency needs and an appropriate health cover should surely not venture into the equity markets.

It is still not clear how the pandemic is going to be tackled by governments world over and how much time it will take to be back in business. How do you see the scenario unfolding?
Going by current statements of governments across various countries, the stance seems to be:

  • Stay at home guidelines for the vulnerable (elderly and those with reduced immunity or conditions like heart disease, hypertension or diabetes)
  • Increased testing
  • Increased capacity of ventilators and personal protective equipment
  • Gradual opening up of the economy keeping social distancing norms and wearing of masks in place
I would expect to see some manner of normalcy in the next 3-6 months. However, this is unfolding as we speak, and one has to keep a watch. The time could extend or shorten depending on the number of additional cases/death rate etc.

Cheaper or attractive valuations are going to be buzzwords for a while now. What should individual investors do in such a market?
Individuals should stick to their asset allocation plans. Those with low equity exposure as compared to their needs or those with surplus cash who have adequate risk-taking capability and a long enough time horizon should increase their equity allocation.

You have been holding cash for such an opportunity. How did you shop during the crisis? What are the lessons regular investors learn from it?
We were holding cash as valuations were not attractive enough. Given that valuations have turned attractive we are very close to being fully invested. The lessons for investors are that one should not chase stocks at higher and higher valuation levels and wait for opportunities. Also, one should have an appropriate asset allocation and have allocations for emergency funds and some debt investments for medium term needs.

Any special advice to ETMutualFunds.com investors at this juncture?
If you have stuck to your appropriate asset allocation, that is great. You don't need to do anything.

If not and assuming you are nursing large losses in your equity mutual fund portfolio, calm down. If you have a holding capacity for the next few years, now may not be a great time to exit. Hold on to your investments. If you have a job loss or an income loss scenario, do what you need to and sell the investments. Health and well-being of the self and family is more important. You will get a chance to save and rebuild your finances later.

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