Thursday, August 6, 2020

Investments will bear fruit in the longer term

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Jaipur, September 05, 2019. We are seeing the effects of negative news flow on sentiment in the stock markets. There seems to be a lot of pessimism all around. India is still reeling under slow economic growth. Much more fiscal support and push is needed to make sure we come out of slow demand environment.

According to Mr Rohit Singhania, Co-Head of Equities, DSP Mutual Fund, India has the potential to grow at a rate higher than many countries in the emerging markets. It has a stable government. We have been having a favourable interest rate environment and low inflation for a long period now. These metrics make the country attractive from a longer term perspective.

Of late, however, the GDP growth has slowed and gone down to 5%. The initial signs of slowdown were visible post demonetisation and GST, as it took time for everyone to comply to new norms. From September 2018, the NBFC crisis has assumed a larger proportion in terms of impact on the overall economic activity. The deceleration is becoming much more severe now with most of the sectors including automobiles, NBFC and consumer sector reeling under pressure of low growth. We need strong support and favourable economic policy framework to revive growth.

For the last four years, corporate earnings growth has been close to 3.5 per cent. The expectation was of a high growth in FY 20-21. That will be achieved only by improving the quality of assets in the financial sector. The question is how well the government handles the assets which are stuck with the National Company Law Tribunal. If this doesn’t happen, then the earnings growth expectations will be really muted. Auto sales are a concern for the economy. If it doesn’t improve in the next quarter, then it might be a problem. As a fund we are slightly more exposed to sectors like healthcare and specialty chemicals where the impact has not been that high. Specialty chemicals has also shown good growth.

Due to the recent correction the valuations are seeming more reasonable now. However, from the investors’ view point, they may not provide returns immediately in the six months or so. Investors who are coming now will have benefit of getting stocks cheaper than when they were at higher levels in 2017. The so-called risk of paying higher price has come down reasonably well. So it is a good starting point but also bear in mind that investors are not going to immediately see the fruits of their investments and need to invest with longer term view. If growth returns, the risk reward is really favourable in the market. Mutual fund investors shouldn’t get out of their schemes after seeing so much pain. There might be volatility going ahead but you should stick to your investment horizon and don’t get out with losses. 

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