‘Identify winners on a bottom-up basis and stick with them over long term’

With the markets at new highs, no one would’ve thought this would be possible when the coronavirus pandemic hit us. What are your expectations from the year 2021?

2020 has been a tale of 2 halves– while the 1st quarter saw the steepest correction in decades, we’ve seen an equally sharp snapback rally in the equity markets over the last 6 months. The first thing to know is that the equity markets are the lead indicators of the economy and not the other way round. In this context, it is interesting that the equity markets bottomed out in and around when the lockdown started and so far, the recent economic data that has followed since then has surprised us positively as well, which means that the markets anticipated the turn-around in the economy fairly accurately so far. Secondly, while equity markets in the near term has seen a plethora of good news like that of vaccine, clearing of uncertainty around the US elections, and a good earning season, and hence we can’t rule out a short correction in the near term. I’m actually constructive about equity markets overall for 12-18 months for two or three reasons. First, it’s worth noting that in the January-March quarter, the quarter right in front of us, we could see some positive headlines about two or three vaccines hitting the market globally as well as in India. Secondly, we would also see a pro-growth annual budget from the Government in the next budget round, as it gives the Government sufficient time for implementation for these growth avenues before the national elections in 2024. Finally, FY22, the fiscal year in front of us could turn out to be a strong year of earnings recovery on the back of weak earnings base in FY21 and a reflection of post vaccine optimism in business conditions in general.

There is a saying that ‘time in the market is more important that timing the market.’ The statement was true for all those who stayed on course with their investments when both Sensex and Nifty hit a three-year lowback in the month of March. What are your views on that?

I completely agree with that statement. Given that this is my third recession that I’ve faced in my career in equity markets, what has helped me during the crunch times whether it was 2000, 2008, or 2020, it’s a realization that ultimately in the form of a portfolio, we own pieces of businesses and not just pieces of paper, that aren’t going to disappear, particularly if they have a moat around them. Furthermore, time is a friend of such businesses. The more time we spend with such businesses as an investor, the better it is as it compounds well meaningfully over the medium term. To elaborate this further, at AXIS, our flagship PMS strategy that we run is built around the moat of brands, and in that context, we recently published a study where we showed that brands gain significant amount of market share particularly during tough economic times like what we have seen over the last two-three years. That results in outperformance of these related stocks in such times. So in other words, you know…Heads – we win, tales – we don’t lose much.

India’s growth or GDP data for the September quarter was better than expected. How will it impact market sentiment in the near future and does this mean that recovery is not far away?

As eluded earlier, clearly there are early incipient signs of recovery visible in the high frequency indicators and true to the nature of the markets, as we discussed, it has anticipated it well so far. Also the question at this point is, how deep and long-lasting is the nature of the economic recovery? In this regard, we might need a bit of helping hand from the Government in the form of a pro-growth budget, combined with the optimism around vaccines and the business sentiment. In my opinion, it could potentially drive a sustainable economic recovery in the year ahead. However, it is a matter of conjecture and we do need to be watchful of the data on these fronts. But so far the data is looking in the right direction.

2020 was a tough year for everyone and the biggest enemy was our emotions. Any instance you remember that happened in 2020 wherein emotions took over wisdom?”

Certainly, the times around March, April 2020 were stressful times when emotions ruled high in equity markets. As investors, we were staring at the health crisis of magnitude we’ve rarely seen before. At AXIS, I would say that our template of investing during these times have been to focus on brand value, to focus on balance sheet strength rather than P&L, cash flow, and by and large staying away from the sectors at the epicenter of the crisis like travel, leisure, and transportation which could see a structural change in the way demand is constructed going forward. This combined with staying away from the trading screen, so that we don’t trade too much,has worked out well for us, navigating through those times. And I would kind of recommend the same for the investors who have the potential to turn emotional during such times.

Which sectors will drive the next wave of bull run in the markets, let’s say, in the year 2021?

Well, at this moment, it is not just 2021, but the whole decade in front of us, I would say, “several trends stare at us that will have a profound effect on equity markets going forward.” I would like to list 3 amongst them – first – sectors across the board are undergoing a technological transformation. As trends like Automation, E-commerce, FinTech, Internet of Things (IoT), and 5G go mainstream in the next decade, these will transform the way business is done across sectors and not just in one sector in particular. Second, lower interest rates compared to history is a norm these days whether it is in India, in Asia, or across the globe. This is a good scene for economic revival globally going forward, and hence, the incipient signs of global recovery, are kind of, you know, worth noting. Third, the coronavirus pandemic has had a profound impact on the way we live and work. This will have a significant impact on the way we live and work. This will have a significant impact on the sectors that are at the epicenter of the crisis like real estate, travel, transportation, etc.,as we re-imagine the way we go to office, the way we work, and stuff like that. On a net balance, these strengths will shape the fate of winners and losers across sectors over the next decade and not just in next one year. Our approach in this, is to identify the winners on a bottom-up basis and stick with them over the long term for wealth creation for investors.

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