What would be the impact of Novel Coronavirus on the global as well domestic economy? Can we expect the economy to bounce back if we find a cure for it?
This economic crisis is triggered by a public health crisis. All previous crisis like the Global Financial Crisis of 2008 and the recession that followed, the global recession following the tech bubble burst of 2000, the Asian Currency Crisis of 1997, the oil shock & stagflation of 1970s and the Great Depression of 1930s were all caused by financial or economic reasons. Since this is a crisis caused by a health crisis and complete lockdown, it is difficult to predict the impact. The global economy is likely to contract by 3 % this year. In India the growth can be very low at less than 2 %. If the virus spreads unabated the growth may turn negative.
Apart from Covid-19 what are the other challenges that the Indian market will face?
Declining mutual fund inflows and selling by FPIs are areas of concern. Another concern is the rising fiscal deficit and a probable rating downgrade by the rating agencies.
Do you currently see any investment opportunities?
Every crisis throws up opportunities. Even though most sectors are impacted by the crisis, there are some segments that are less impacted and some segments that will gain. IT will be less impacted since there is high level of work from home. Also INR depreciation is helping the industry. Health care, particularly pharmaceuticals, stand to gain. There is huge demand and good exports. Perhaps the biggest beneficiary of this crisis is the telecom industry. Explosive consumption of data will boost the bottom line of telecom.
What are your views on market valuation?
Market valuations based on PE are not very attractive since earnings will be poor this year. But from the perspective of Price to Book and Market Cap to GDP, valuations are attractive. There is a good possibility that the economy may rebound sharply in FY 21. If that happens, the present valuations will look attractive, in retrospect.
Going by fundamentals do you think Indian market is trading at fair value?
Going by the fundamentals, valuations are slightly on the higher side. But higher valuations are justifiable when interest rates are at historically low levels. The US 10 year bond yield is at 0.6 percent. This means money is likely to move to equity when the situation stabilises.
What would be the likely trading range for Nifty in the next quarter?
Trading range is difficult to predict. If there is some positive news like an early vaccine or effective treatment, markets will bounce back sharply. On the contrary, if the situation deteriorates and economic activity is impacted badly, Nifty may retest the March lows.