To be honest, the markets are designed to be a lot more volatile. So you got a 3% rally on Thursday. We were closed on Friday but a lot of markets across the world crashed quite spectacularly on Friday; so I think we are getting a catch up of that effect. To a certain extent, we have negated most of Thursday’s rise and at this time, there are going to be a lot of mini crises. So we do not know whether the NPA situation at banks and financials is going to get out of hand. We do not know what is going to happen when the lockdown actually opens.
Today is the first day of the opening of lockdown in many places. We do not know how long that is going to last because this might obviously result in some kind of increase in cases but will it go out of hand? Given that uncertainty, there is going to be a lot of volatility in the market as well. Given that we move 2%, to 3% a day anyway, I think you should expect more. I do not know whether there are specific reasons markets are worried about or if it is just worldwide volatility which is coming back to beat us up or maybe it is the old adage of sell in May and go away that people are taking literally. I wish I knew the answer but I do not.
Would you have been one of those people that were starting to think that this was going to be a clear cut move higher?
It was a little fast at the back of not so great economic data but I think in any case, I was a buyer over a period of time. So I plan to deploy more capital over the next two or three months and to me this move down may not necessarily indicate that the market is going back to the lows and the move to 9,800 levels on Nifty was not an indication that it was going back up to 12,000 either. So I think markets are going to be very volatile.
Our strategy has not changed; deploy over a period of time rather than all at once. Our long-term focus is still on liquidity right now because we are seeing that liquidity in debt markets are still not giving us a lot of comfort; equity markets are a little more comfortable there and we are also looking at fundamentals as results start to come in and more fundamental data and macroeconomic data comes in. So we are not very enthused in saying that take out your cash and start investing everything in the market today but I will still say that for two months more, volatility will continue. Maybe the end of June or mid June is where you might take another reassessment.
Do you think there is a possibility to retest March lows or do you think we are far away from that?
To be honest, I do not think anyone can say there is no possibility of touching the March lows but do not predict. It might go there, it might not. But what are you going to do when it goes there if it does? I think my answer would be: continue my buying. I might accelerate a little more on the downside in terms of buying. What I was spreading across six weeks might come down to four weeks but I am roughly ready to say I do not know the answer or when that bottom is going to come and therefore I am investing over a period of time.
I am actually focusing a little bit more on largecaps today and some of the stocks which got beaten up in the last move included some of the liquor stocks and they have recovered. They seem to be holding up today as well. So some stocks will retain themselves; some will fall a lot more. So it will give you more opportunities regardless of whether the market itself falls. The idea is to now look at opportunities where the markets can redeem themselves. There is a lot of bad news that is still going to come. We have not heard the worst in the economy yet. So we might hear some good things as well in terms of either a vaccine or prevention, change in the curve in the West that might be more permanent; those are the good factors that might come in and help the market in the days to come.
However, I think a lot of unemployment data is going to get worse. We are going to get job cuts and salary cuts across the board. We have to deal with that and there are no two ways about it. Hopefully there will be some kind of stimulus in India. Even Malaysia has announced a 10% of GDP stimulus, Indonesia has 3% of GDP. India has nothing. So I think something should come. So hopefully all of this news will either create satisfaction or disappointment. The markets are going to be very volatile. So I would not say that this is the end of a downfall but at this point it is better to react than to predict.
How much really do you think the stimulus will bring at this point whether sentiment-wise given that even the next couple of quarters earnings are definitely going to be worse than expected?
Given the state of the economy, we are going to need at least Rs 4,00,000-5,00,000 crore of stimulus or maybe even more. The government may not entirely be able to finance all of it from its internal accruals opportunities but I believe the RBI can give a fairly large dividend to help it along the way to do this. I hope that they will consider this approach. There are a bunch of others as well. For instance, your unclaimed dividends of all the companies that have gone to people who have not claimed those dividends, that adds to a fairly large number and that sits in the RBI as a 0% interest earning account and the government could borrow from that account at 0% because interest is not paid on those dividends and then use that money to help the economy without having to go and borrow from the market.
There are a bunch of other places as well for financing it but also, where do they spend it? I think it has to be small business, the poorest of our households, perhaps the farming community because they are going to need a lot during the harvesting and selling season, and some of the other medium businesses. I do not think large businesses need a lot of stimulus from a fiscal perspective. They do need some help from a monetary perspective to bring down rates and so on; that has to be pushed by the government.
I feel, however, this will be staggered. It will happen one little piece at a time and only add on towards the end. India does not believe in doing big name things. That shock and awe phenomenon does not happen here. So I wish it did because if it did, we would recover faster but by the nature of the game, the bureaucracy, the way things work, it is not going to happen. So there is no point speculating what should happen. I think what will happen is a small level of stimulus that will only increase once people find out how deep this crisis is. So expect things to happen in a six-month period rather than immediately right now. I hope something comes soon because we have had a small opening up of the lockdown. So people will soon be aware of how bad the situation is. They need some help from the government.
Do you think the market is going to start getting selective even with the defensives or the stocks which are finding favour right now? In telecom, you have only two options; so I guess one would stick by. But within pharma, that cluster buying approach which played out up until last week is going to get a little bit sieved now?
Yes, also Trump today tweeted that he wants more manufacturing inside the US. That hurts a lot of companies that do not have that kind of ability. So it will be some of them that will have to either evolve or the bigger ones who have cross manufacturing facilities across may be able to take the benefit of that. So the space will evolve.
Within the pharma pack are Abbot and Sanofi and AstraZeneca who do not necessarily export. So their market is more local and domestic. So there is potentially a very different investment thesis in those companies. They have also been going up and they are priced at very high PE ratios or price to book ratios. I feel some of that may behave differently.
I believe the MNC pharma companies are unlikely to fall by a very large amount though we are invested in some; so I am biased. I do feel, of course, that the pharma pack will find the bidders and FDA action which may come back after some time will determine the course of who wins and who does not among the domestic exporters. And you are going to find favour.
The cross segment move that we have seen in the last one month may eventually end up getting more selective but this is a panicky market. It will panic buy and panic sell; so I do not know if you can say that this guy is going to stand out from the rest in the face of people panicking in buying or panicking in selling. Ao I would not necessarily bank my bets on only a few companies standing out in case of a carnage.