Indian Stock market: Prices are now comfortable, but India still not a ‘screaming’ buy: Hugh Young


There seems to be a growing consensus that there will be a global recession. How bad and lengthy will it be this time compared to 2008 or the ones before that?

It is still very hard to say so yes I think it is fairly consensus now that there will be a recession because so much economic activity has stopped. We don’t know for how long, of course, but it is very sharp and it is reflected in the stock market too. The recovery could be quite V-shaped but that seems a very optimistic scenario at the moment because Europe is in trouble, the US is in trouble, and India is seeing it as well. The answer is we don’t know.

Are you advising investors to stay away or deploy cash in stocks?

If you are a conservative investor who has a fair amount of exposure to markets but no huge debt and cash in the bank and still some earnings coming in, it is a good time to be buying. If you already have a lot of debt and are exposed to the market, that’s a very high-risk scenario because if you put more money and the markets fall, you potentially risk being wiped out. It very much depends on the nature of the investor. It would be foolish to say three months but looking back on it, it might well be a year or longer when you look back and think, it was a great time to invest in some of the cheap, good equities. At the moment it is hard to say that. It might still be an issue in 12 months time if vaccines haven’t been found and controls have failed. My instinctive reaction when markets fall as sharply as they do, and the underlying companies are still ultimately strong enough, it is a great buying opportunity.

How much more can EMs including India fall from current levels ?

Statistically, markets still have room to fall obviously. Is the worst over? I would like to think the worst is over but I am not calling that with any degree of certainty at all. The fear is not irrational. Lots of people are dying and the economy is suffering as a consequence. So there is some basis for the fear and fear can always drive prices far further than you would think. India is still one of the more expensive markets but prices of companies have come back to levels where we are comfortable with them.

Financial stocks like the HDFC twins, IndusInd Bank, ICICI and Axis Bank have fallen the most. Would you look at them now?

We do hold HDFC. We were comfortable three months ago when the stock was a lot higher. Now the valuation has started coming back down. HDFC would be a classic stock where we would have high comfort, and again depending on cash flows and positions, we would be happy buying at these levels.

What about consumer names? Are you comfortable with valuations?

More comfortable is the answer. The problem we had with India for quite a few years is that it has been fairly highly valued and earnings have not been coming through as well as they should be. We are a lot more comfortable with prices where they are. But is India a screaming buy? Probably not at the moment. Is it a comfortable buy? Yes. I am talking about the market as a whole. In the consumer sector we have Godrej, HUL, ITC within our portfolios. They have never been really cheap. Of course they have got a lot better valued. But still you have to work out the impact on earnings and in theory it is a sector where earnings should be more resilient.


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