Invest in auto, CD, paints, home-related stocks: Rana B Gupta

How are you looking at the policy and fiscal stimulus action here in India vis-a-vis some of the other markets that have been impacted by COVID? What more is it that you would like to see?Regarding the fiscal support, because of the coronavirus-related lockdown, our math suggests that the economy would lose somewhere between 6-8% of the output provided the lockdown is for a month or so. What we are seeing in many markets is that the governments are trying to fill up for that lost output with the help of central banks. What we have seen in India is that the RBI has been pretty proactive and they have come up with a fairly aggressive program but the government fiscal stimulus to GDP, so far, has been less than 1%. We would expect the government to do more. We would expect the government to provide more stimulus to medium and small size businesses. We would also expect more stimulus so that the consumption, employment do not show a rapid decline. If they do, then some amount of it will become permanent. So, definitely there is scope to do more and we believe the government will do more.At a time like this, what exactly are you advising investors to do? Would you be picking up stocks at the bottom? Or is there a sense of caution and trepidation, and would you wait for things to settle before nibbling in?The bottom formation will be a long process. We will have to go through that but for any durable bottom to form, from which you can be pretty sure about the market moving up will happen when a solution to the medical problem has been found. At the end of the day, it is a medical issue and a solution has to be found. The markets have corrected a lot, so there is some value in certain pockets. We are looking at it very selectively and our view is that even when this episode is behind us, the world that we will see, will be much different from where we are today. So let me share a few examples and those are the kind of sectors that we are looking at. For example, we do think that even when things become normal or near to normal, the demand for private transportation will go up. This means probably one will use their cars more often, maybe even buy a new car or a new bike; therefore, auto, auto ancillary, and auto consumable sectors should see good volume growth. The second example would be that from now on people could spend more time at home, so for home-related spending, paints, home decor or white goods may see an uptick. On the other hand, we do think that people will spend less at the malls, at the restaurants or the movies. In terms of the companies within that sector, one should look at one with a defensive business model, having strong free cash flow generation and maybe even a bit of net cash on the balance sheet because the times are uncertain and the company needs to ride through this uncertain period.If I look at India, the first impression is that 2018 was a bad year, 2020 is going to be a terrible year. That is the bad news but the good news is that the virus, thankfully, has not spread unlike other countries. Oil prices are crushed, Indian government has brought down rates, moratorium is at play; as an outsider should one focus on the bad news or take advantage of the good news?It is a bit of both; you are right that the virus has not spread in India as much as other countries and the numbers are still pretty low. Now, we will have to see how the numbers pan out. But the point is that the economy is under a lockdown and simultaneously it disturbs both demand and supply. The government has to come up, which we think they will, with more fiscal support measures. Today we live in an interconnected world, so some part of export-driven growth or the growth that comes from capital flows will suffer as a result of the global issues and that is another part we need to keep in mind. And we do think there will be significant behaviour changes for customers. One should be looking at opportunities. For example, if one is looking at let's say retail or an airline or commercial real estate, there the road to recovery will be much longer than consensus is thinking.What is your understanding of what will happen to retail dominated franchises? Up until now, we have not seen a retail crisis in India but now that there is a lockdown you will see EMI defaults, you will see credit card defaults, you will see change in retail behaviour towards borrowing. Are you worried about retail dominated franchises now?The moratorium would come in pretty handy and we will have to see after the moratorium what happens. At the moment, it is pretty uncertain and evolving situation. We would not be that much worried about people who are salaried or even self-employed professionals like doctors, lawyers and so on and so forth. That being said, one has to see what kind of support will be offered for non-salaried individuals or small businesses which do not have a regular income. That is one segment that could suffer from the lockdown if there is no support. Even with the moratorium, there could be some issues. Therefore, the unorganised sector, the bottom of the pyramid sector, the microfinance sector needs some sort of policy intervention given the lockdown that we are facing.Most of the global investors are long Indian private banks, long Indian consumer and insurance. In the overall scheme of things, are you looking at revisiting something else? A reboot gives us an opportunity to revisit high dividend yield stocks, low PE stocks. Would you be tempted to change your bias of portfolios which is tilted towards quality and private banks?This is a great time to build position in quality stocks. By quality stocks we mean local business models, defensive business models, businesses with strong free cash flows and more than dividend yields, dividend growing; you need to focus on them. In terms of your question on private banks, we still like the large liquid private banks that are well capitalised. That said, I think the medium and small size private banks could face some issues. We would be on the sidelines on some of them.

from Economic Times https://ift.tt/3aKGQXW