No scope for bigger stimulus from govt, but RBI support to continue

Due to the pandemic and the lockdown, there has been a significant amount of demand destruction. There is virtually no economic activity, no industrial or manufacturing activity. There is no trade and transport. The estimates for GDP growth for India and China are placed a marginally positive while it has been put in negative territory for the most part of the developed world.

In this connection, it is worthwhile noting that many parts of the world including India and China have been experiencing sluggishness in economic growth during the last year. The same is true of the US and Europe. The pandemic has aggravated the situation.

There will be real relief only once the lockdown ends and the pandemic is contained effectively. This may happen only over a period of time. The economic packages announced by the Federal Reserve, ECB, Bank of Japan, and the RBI, would all go a long way in providing relief to people and businesses, and will help hold the economy up by encouraging people to spend and consume.

This helps the transitionary period to be more smooth at a time when millions of people are losing jobs and left with little for sustenance. It is felt that the impact of the pandemic on economy and markets will continue to be there for the rest of the year that is almost another two to three quarters. The earlier the containment is achieved the better it is for economic activity to start and the repairs to be done at an early date.

Q: What are the rules that investors must follow in terms of investment and management of portfolio in current economic and market conditions?

Investors should get their portfolios reviewed by their advisors and ensure that the portfolio is more or less in alignment with the risk profile. If it is not in alignment with risk profile, then any damage to the portfolio is going to hurt the investor. This is one of the primary things that should be taken care of, not just at present, but at all times.

A second thing which investors should understand is – how closely the current portfolio is aligned to the long term personal financial objectives. Is the portfolio helping in the attainment of the objectives and would it be capable of delivering the desired results over the long horizon?

Investors should also ensure for themselves that they are dealing with and being advised by a team of experts or advisors who have a good reputation and standing. This is important because only such entities will have a scientific approach to advisory and product selection. It is also important that as far as portfolios go, at no point in time, whether in equity or debt, quality should not be sacrificed for higher yield or quick returns. Quite often, the promises of higher returns turn into traps which would destroy value ultimately.

In times of turbulence, there will be a lot of stuff heard on the TV channels and written in the press. It will be a wise thing to keep away from too much of this a sit often leads to confusion. This may also result in many instinctive and wrong decisions. Most important thing is that one should work with a good advisor.

Q: Given the volatility in oil prices amid low demand and high supply, do you think oil prices will remain around current levels through 2020? Is India really benefitting from this oil crash or is it just a temporary benefit?

The world is divided into two theatres. Those who buy or consume oil and those who produce it. As far as those who consume are concerned, they may not need more than what is available at this time. Oil is not something, the consumption of which, increases with a fall in price. But consumers benefit from lower prices. As far as producers are concerned a fall in prices would lead to uncertainties in the viability of their business.

As far as countries like India is concerned, we may benefit from a fall in prices, but the impact of the fall in oil process may have a negative impact on sentiment. If oil prices fall too much it means that the overall economic conditions are not good. In a booming economy, the demand for fuel will be robust. So, if the prices fall it means that growth may be slowing down. But over a period of time after the economic impact of the pandemic comes down, and the oil markets stabilise, prices may start gradually moving up towards the $35-40 levels.

The Indian crude basket is a mixed basket, a third of which is Dubai sour crude and one third is Brent sweet crude. Brent is currently at the $19-20 a barrel levels, and the Dubai sour crude is at $27-28 a barrel levels. Therefore, the arithmetic is slightly different from a WTI. But we stand to benefit from the fall as the import bills have been close to $150 billion per annum and even a small savings on that would be substantial.

We also need to take cognizance of the fact that the Dollar-Rupee exchange rate is also a crucial determinant of how cheap we will be able to get the stuff. Unfortunately, at sometimes in the past, a fall in oil prices and a fall in the Rupee happened simultaneously robbing us of a part of the gains that would have otherwise accrued to us. To look at both the things through an optimist’s lens, the fall in the oil prices will bring don our import bill, and a fall in the Rupee will make us more competitive in our exports.

Q: India is expected to announce a major financial package that will help revive the economy faster. Do you agree?

We have seen several measures been already announced by the RBI. These measures are addressed to a major constituency of people and businesses that require support at this juncture. I do not see any scope for any major measures coming from the government. The government finances do not permit much spending by the government. Using the monetary option fits in very well given the state of the government finances.

Q: Which sectors/stocks are expected to drive the next bull run?

Whatever benefits from essential consumption is likely to do well. Consumer staples, retail, online businesses etc. are likely to benefit due to the peculiar situation. The pharma and healthcare sector is likely to do much better than it has done so far. The tech sector also may benefit from the weaker Rupee and the existence of long-term master contracts which help these companies in ordering their business better, year to year.

Q: Do you think the liquidity measures announced by RBI will help the banking & financials (NBFCs) space in a big way as many experts feel there could be NPA crisis once the lockdown gets lifted?

The raw material for banking and financials is liquidity. The liquidity support announced by the RBI is only a temporary measure to tide over the current crisis. It is required at this juncture. It is because many of the entities including NBFCs may not be getting much of fresh business or even repayments from the existing borrowers due to the inclement financial weather.

So, the accommodation is really required. But it is no guarantee against or a resolution of any issue concerning bad assets. Bad assets need to be taken cognizance of and provided for. It is possible that there may be a rise in NPAs because of the impairment of the repayment capacity on account of the lockdown and the consequent loss of business revenues.

But the accommodation from the RBI will be withdrawn only gradually and that umbrella will remain with those who need it even beyond the immediate future. There will be a strategy in place for reversal of all this.