Trading in Times of Lockdown: Why this Dalal Street veteran sees no urgency to invest in this market

Chennai-based investor Shyam Sekhar seems to be living by this decree of the Father of Value Investing in these trying times.

As domestic stocks perished in the tsunami of selloff after Covid-19 outbreak and the resultant lockdown made the near future look uncertain, Sekhar stayed calm and defensive. Or, at least that’s what he told us in an interview for our Trading in Times of Lockdown series.

“What’s the urgency to invest in this kind of a market?” he asks. “The economy has come to a complete halt. Who is going to pump-prime this economy back to health is the million-dollar question right now. I don’t think there is any blueprint in the public domain yet.”

BSE benchmark Sensex cracked over 30 per cent on a year-to-date basis till April 8 amid Covid-19 concerns, though it has since bounced a bit to cut those losses.

“Until we have such a blueprint, whatever investment and assessments we are making are pure conjecture,” Sekhar said. So, he has kept himself busy largely in research and other businesses through this lockdown.

Sekhar is Chief Ideator at Chennai-based Sebi registered investment advisory firm iThought, which has an avowed objective of creating sustainable long-term returns and managing financial risk for investors.

One has to have a clear understanding of where the growth is going to come from before betting on any stock, says the market veteran.

“I would prefer to stay with the defensives. This is what I have done and I will continue to hold on to,” he confesses. “I will bet on growth stocks only when there is clarity on how the economy will bounce back. At this moment, there is no visibility,” he says.

Sekhar has been active on Dalal Street since 1990, and he loves to spot quality businesses more as a passion than a way of making money. Earlier, he had rightly called a crash in Indian midcaps & smallcaps in 2017.

Even after the brutal correction, Shekhar still finds midcaps and smallcaps to be expensive given the economic realities.

BSE Midcap and Smallcap indices are already down up to 50 per cent from their respective all-time high levels scaled in January 2018. In the latest wave of bounce, however, these second-rung stocks are showing more agility than their largecap counterparts.

“What you pay for next 2-3 years is still very high for many of these businesses. Very few companies and sectors look good from a valuation point of view,” says Shekhar.

“There is a lack of growth visibility. When you are buying something because an asset is cheap, you are hoping that growth will make superior earnings. That does not offer comfort to buy large positions,” he says.

Major bear markets have a habit of changing the pecking order, and Shekhar believes in it. “A crisis usually throws out-of-flavour themes, and then new ones gradually emerge to occupy centerstage,” he says.

From his nearly three decades of investing experience, Shekhar says it is meaningless to chase price performance in the next round of rally. “It can be because of capital inflow. Focus instead on the performance of the business.”

And then he warns: “Business performance is going to change dramatically across industries over next 18 months. You cannot move beyond big names until you have a full grip on how it is going to change,” he says.