In view of the recent happenings that have engulfed the global markets and the Indian stock market recently, the coronavirus pandemic that has infected people in more than 25 countries has definitely sent alarm bells ringing.
What we are going through presently could well be described as one of the most difficult times of Indian stock markets over the last many years of correction that we have witnessed.
Though the markets appeared to be resilient for quite some time, they eventually gave way & most market participants, be it investors or traders, are now going through tremendous fear & pain.
Everyone of us, be it our family members, friends, clients, colleagues, all of us have witnessed this huge downfall in our portfolios in such a short span of time. However, let us understand that even though these times may be tough, the business value of most companies has not changed, neither have they deteriorated completely.
It is important that we should not get swept away with emotions looking at present stock prices & we shouldn’t let them control our decision making in any way. It is time for us to stick to our decisions of buying and holding on to our stock picks with the original intent with which we invested for a particular objective or for a specific time frame.
These times will definitely test us as on one side, we have seen a big time correction happening almost on a daily basis in a way that we may have never seen before and at the same time, there is a huge crisis due to the impact of corona virus which has led many intellectuals to feel that this would lead to recession in the near future.
However, I have a different take on this, please read on to know my views:
I believe that from present levels, the Indian markets should respond favourably once this dust settles and the fear and panic subsides thereby restoring most human & economic activities.
If we have to look at where the Nifty is at, 7500 has been a great support level for nifty while for Sensex it is 25000. Forward PE for nifty is at 13.5 now which in itself is a great opportunity. Interest rates have come down which will benefit the cost of capital of companies and they in turn will start growing faster. Most of the negatives have now been factored in and the markets have made exaggerated reactions already.
I believe this is the time to start building fresh buy positions gradually and in a phased manner.
Banking and NBFC space was all out of liquidity and hence were not lending and this was the primary reason for the slowdown witnessed in the SME space.
We were witnessing few and very limited stocks based rallies for almost a year now which contributed to these up moves in the markets, though it led to a lot of room for questions such as why individual portfolios have not moved up.
However the selling that has happened now seems to have gotten everything back on track. I would suggest that we should not panic and sell because this is a phase where the markets will quickly recover.
In fact majority of the cleanup in the Indian banking and corporate sector has almost been done with. This was a period where we were all set to shift gears and accelerate. The corona shock however has applied sudden brakes and though it can be viewed as a speed breaker, it definitely cannot halt our growth story which is almost ready to take off any time.
Considering that most of us haven’t invested at the end of 2017 when broader markets were at their peaks and because we have been investing for many years now, we are able to better understand the valuations and market dynamics.
The slowdown has already been here for three years now and this is not a recent happening. We might stand apart from our global counterparts even if international markets hit a bear run. Not to forget that Indian markets haven’t participated much even when global markets were moving to greater heights for the last two years.
As an investor, I would recommend that we should act rationally and from here on, one can definitely consider buying. Whether markets will go further down or move up, it is very difficult to figure out what the bottom would be.
However here are some very strong reasons in addition to the ones stated above, which makes me suggest that we are safe to enter at these levels:
1. Market cap to GDP ratio at 0.50 makes it a very attractive buy.(almost similar to the bottoms of 2008)
2. Indian markets had already been witnessing a slowdown for the last 2 years and we have not corrected from the top this time, Hence, the recovery will also be very quick.
3. Oil prices at $25 gives a huge support to the government to take a rational growth oriented approach to turnaround the economy from slowdown to growth. A rate cut is also expected from the RBI anytime soon.
4. While the entire global corona virus impact may have led to reduction in production by approximately 10%, the market has definitely over reacted by correcting almost 30% from its highs creating better opportunities to buy again.
5. Unlike in the previous falls, the earnings cycle of Indian companies was on a road to recovery and not peaking out and post this current rerating of the market, we will definitely look forward to recover this growth in the second half of the financial year.
6. Forward PE for Nifty is 13.5 now which is lower than its average mean of 18 by a huge margin. This is an indicator of the gains that you can expect in an individual stock when a reversal comes in.
From a buying perspective, there are many sectors which have and will benefit out of this turnaround such as
- Specialty chemicals
- Corporate banks
- Consumer
- Pharmaceuticals
- Infrastructure & Metals
- Glass companies
- Insurance and Healthcare
- Asset Management Companies
- Tyre companies
This is in fact the right time to concentrate on these themes and deploy fresh capital or do some restructuring in our portfolios as and when required.
To conclude we can say that at lower prices, the perceived risk is very high and it takes real courage to go against the flow when usually everyone sells.
However, if you are able to discount factors like news, fear and other extrinsic components, that is when you are likely to reap the highest rewards.
Here are some stocks that I am unable to resist buying at these highly attractive levels –
Virinchi technologies @ Rs. 21,
PSP Projects @ Rs. 290,
HCL technologies @ Rs. 415,
Di Amines @ Rs. 130,
Rallis @ Rs. 150,
Bandhan Bank @ Rs. 175.
What are your views on how to play the market in the present conditions. Please feel free to share with us in the comments.
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