FROM THE CEO’s DESK
Dear Investors,
“Everyone has the brainpower to make money in stocks. Not everyone has the stomach. If you are susceptible to selling everything in a panic, you ought to avoid stocks and mutual funds altogether.“ - Peter Lynch. At some periods, stock markets are volatile and the normal response for investors will be to reduce the exposure to stock or get away from equity; resisting the urge to panic during the unstable period and following a strategy during this period is crucial. There were very few better times to grow an equity portfolio than now, as the recent downturn in stock prices and favourable valuations would make a significant contribution to long-term wealth building efforts. There are several valuation indicators that suggest favourable entry points for long-term investors, such as market cap to GDP, price to book value and earnings ratio. This short-term volatility is less important if we take into account the longer investment horizon. In the last three decades, the stock markets have faced many adversities, and from all events the markets have emerged stronger than ever, and this time it will do so too. Given the "sudden pause" in global economic activity in 1Q2020, it is promising to see fiscal and monetary steps are being taken by various central banks and governments to limit the economic effects. The G-20 countries suggested that they would jointly invest more than 5 tn US dollars (i.e. 6 percent of global GDP).The US Government has proposed a ~2 trillion dollar stimulus package to support the US economy ravaged by the Covid-19 outbreak, while the European Central Bank (ECB) has pledged a huge € 870 billion injection. The Bank of England agreed to hold the interest rate at 0.1 per cent and offered a quantitative easing of 645 billion pounds during this time to help its economy. Owing to Covid-19 virus and potential slowdown in FY21 GDP numbers, the GOI and RBI had come out with a slew of reliefs. potential tailwinds for the Indian equities are low oil prices which would have a positive impact on the Indian economy. India's monthly trade deficit with China has been narrowed, due to import restrictions. Shift of manufacturing operations from China to other EMs is a huge opportunity and India could be one of the key beneficiaries. As the Covid-19 scenario plateaus, the FII / FPI's hopes of returning to emerging markets and India in particular are not unreasonable on the back of humongous global liquidity and low interest rate scenarios; while SIP flows will continue to support the market in the near future. Although we expect FY21 to see a growth recovery, difficulties may emerge in Q1/Q2 FY21 due to disruption of inventories. Reforms such as GST and corporate tax cuts, improvement in ease of doing business, and economy formalization will support the supply side We recommend being overweight on private banks, FMCG and the healthcare space while being neutral on IT. We suggest being overweight on equity keeping in mind the attractive valuations post the steep recent decrease in stock prices and advise investors to use any corrections, as a buying opportunity. Mid & small caps took a beating too in the recent correction. In the course of CY20 we expect mean reversal to happen which will allow mid & small caps to catch up on their last two years of underperformance vis-à-vis the Nifty-50 index. We encourage investors in mid-and small-cap space to look for companies with good earnings growth prospects and with fair valuations available at beaten-down prices. The attractive equity market valuations reinforce our view of equity overweight with a bias towards large-cap stocks and selective multi-cap mutual funds and PMS (Portfolio Management Services). We propose 65% for Large Cap, 25% for Midcap, 10% for Small Cap as part of the distribution among Equity-sub Asset Class. On the debt side, investors are suggested to purchase quality credit papers and stick to accrual funds,while maintaining 5%-7% as a volatility hedge allocated in gold.
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