Valuations of the domestic equity market have become a big draw with the recent correction and there is an opportunity for investors to make the most of it. Valuations are not as low as they were during the global financial crisis in 2008-09 or even in 2003-04.
The economic slowdown in the short-term is inevitable
and could impact the FY21 earnings but added that a rebound post-crisis could
be sharper than expected, based on past experiences. The lesson from history is
that rebound in economic activity could be sharp after a crisis.
However, Foreign Institutional Investors (FIIs)
have alone pulled out more than Rs 60,000 cr from the cash segment of the
Indian equity market in March alone.
Impact on Economy
The economic activity has dropped sharply due
to the lockdown but this could be partially mitigated from the benefit of lower
Corporate sales growth and profits will likely
be adversely affected by FY21. But if the period can be navigated, then the
recovery would be quick thereafter.
Investor behavior and overall flows have been
quite encouraging. Not being reactive to the fast-changing situation is
suggested to all the investors. Hence, it has been recommended for investors to
stick to their asset allocation plans and rebalance in line with that.
In terms of strategy, allocations for all the
margins have been shifted towards companies that are likely to emerge stronger
from this challenging economic environment and uncertainty and are supported by
attractive valuations. Over time if new structural trends emerge, the impact
will have to be considered undoubtedly.
At a time when the market has been in the
downward journey, there are value buys across sectors. Some businesses are
expected to benefit from trends like increased work from home if that were to
become a structural trend.
However, sectors such as hospitality and
travel may experience stress for a longer time.
Fund houses are picking companies rather than
sectors that are believed to be a more crucial source of Alpha as the economy
navigates this challenging period. (Alpha is a measure of the active return on
an investment, the performance of that investment compared with a suitable