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Strategy in a market like this should be to buy quality largecaps: Kunj Bansal

Pick stocks that have the capability to withstand this current shock, says CIO, Sarthi Group.

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Last Updated: Mar 31, 2020, 03.49 PM IST
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Kunj Bansal-1200
These will be the stocks which will recover very fast; so that is where I will focus.
Yesterday was an eyesore. Everything is going our way. The virus spread is getting contained if I compare it with global averages. Crude is behaving exactly the way it is. The RBI has given a big moratorium; they have not used a bazooka but heavy artillery to fight the war. Yet, what did we see on Monday? We underperformed and FIIs continued to sell.
The FIIs are selling because of their own issues. As we all know, this is a global pandemic. All the FIIs have issues of coronavirus in their own country. So probably, some of them are facing redemption and some of them just want to cut their positions. Some of the hedge funds have probably reached the stop loss limits. Right now, nobody knows the economic impact that will be there. For FII selling, it is more of their need. Everybody expects that governments as well as central banks and all other regulatory authorities will indeed support their respective countries and population. So RBI bringing in a big artillery is not a positive surprise. It was in fact in line with the expectation. In fact, some of them might say it was delayed because all other global central banks had taken similar actions much earlier while the RBI took almost 15 days to come out with such measures. So RBI measures, government measures are not going to stop the FII selling.

As I said, it is because of their own concerns and their own requirements. The supporting factor thankfully is, we at least continue to see buying from the domestic institutions. Till now, there are not many signs of the inflows into the domestic mutual funds slowing down or SIP slowing down. Maybe it can happen going forward. But as of now, that is not the case. So that is a positive sign. A one way fall that was to happen in the market seemingly is over. Of course, these are difficult things to say but we will have to keep monitoring as we go along.

Yesterday, financials as well as autos took a massive hit. They were the ones which really dragged the indices lower. What is the big concern with financers like HDFC, Bajaj Finance, Shriram Transport, Chola Finance? It was almost a case of basket selling yesterday?
Just to put a perspective on the market fall and on the indices, let us also look at the FMCG stocks. In fact, they have been sharply outperforming. In fact, some of the FMCG stocks yesterday closed positive. The market is trying to distinguish that in this whole development that has been happening, which are the sectors which will benefit and which are the sectors which will not benefit.

As a market or as a market participant, I do not know what will happen to the financial stocks, especially NBFCs and retail lenders. Of course, the moratorium has been offered. It does not affect the interest and repayment that will come to these companies. But it does affect cash flows which may not be a big issue for them, especially the bigger banks and NBFCs; for smaller ones it can be, so that is one point.

The second point is, can there be NPAs despite moratorium being given? Can there be some borrowers who will simply say that I do not have any money? The third point is, even if there is a security and if the lenders try to repossess that, will it really be worth it? Will they be able to get some value out of it? Will there be a market for that to sell? The fourth point is the future growth. How soon will the whole lending business be able to come back on line? How soon will the demand be back in the system. So these are the concerns that are affecting the market. Of course, let us not forget that BFSI is a high beta sector; so in case of any fall, this will be the sector which will lead the fall and so will be the case in case of a rise in the market.

Do you think it will be a while before the auto sector would make a comeback? Tomorrow we will have the monthly sales data and I am guessing we would be hard hit at a time when the industry was already grappling with the BSVI transition. Now you have got a double whammy with this pandemic.
Yes, you are right. The sequence of recovery or the sequence of demand pickup will happen post the pandemic.. As I just said, some of the stocks from the FMCG sector have not fallen. In fact, some of them have gone up. So that will be the first sector. Some of the companies are not able to supply. For them, the problem is the manufacturing, logistics and supply chain problem; demand is not at all an issue. So that will be the first sector wherein demand is already there and will continue. Second, it will move to essential durables. So something like, say, fans, bulbs, tube lights will gradually start moving.

Only then will we come the automobiles; in that also, two wheelers will probably see the first round of recovery before moving on to the four wheelers. That is where we are seeing such kind of heavy pressure. Within auto, the commercial vehicles demand will be much later because before the pandemic also, we were sitting in an over capacity zone as far as commercial vehicles were concerned. We had much lower demand for cargo movement and much higher availability of the vehicles. For tractors also, we had seen a significant increase in demand till two months ago. So that also does not have any immediate reason for the demand to pick up. So that will be the sequence of recovery.

What is your take on Future Group of companies? These are good brands which are built to last. Yes, there could be a promoter leverage issue but in terms of the business, they have a good model. Would you buy Future Group of companies in this panic because this is a good business and somebody will bail them out?
Very frankly, I have not looked at these companies. So I would not be able to give a view there. But the way I would approach the market is, almost every other bluechip is available to me at whatever price I want except the consumption stocks. The FMCG sector that we have been discussing time and again has not come down. So my strategy in this market would be to buy those stocks and companies which are largecap bluechips, have much higher capability to withstand this current shock and will be able to come out of it as soon as the economic recovery starts in the system. These will be the stocks which will recover very fast; so that is where I will focus.

I want to understand about HDFC Limited. The stock is down from Rs 2,400-2,500 to Rs 1,500 levels. It is one of those businesses which have survived the storm. Many booms and busts have come and gone yet the good old HDFC continues to grow at a stable rate. Would you be tempted to buy HDFC at this level?
I would think so. Not that we are buying this in our client’s PMS portfolio, but in my discussions with so many other clients and other people, I have been recommending it. This is the market to buy those stocks wherein you are comfortable about the management. You know the base of the company, the financials of the company based on the past performance. The reserves and profitability is good enough to sail them through this crisis even if it becomes slightly longish. So those are the companies and management that one should be looking to buy. So to answer your question, yes, I would be tempted to buy.

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