- Stock market has become a time travel machine
- We have travelled back by 4-9 years to buy large, mid and small-cap stocks
- Market cap to GDP ratio at 50% clear signal to buy at current levels
- Gold to continue performing well in low interest and high liquidity regime
- Buy your dream house by bargain hunting in real estate
- Diversify your portfolio across asset classes and geographies
The coronavirus pandemic has hit the entire world, but most vulnerable are medical practitioners fighting the virus from the close quarters. In the challenging times, Nilesh Shah, Managing Director, Kotak Mahindra Asset Management and Srikanth Subramanian, senior executive director at Kotak Wealth Management addressed the doctor community in a 'digital dialogue' organised by Ajanta Pharma on wealth management. Shah and Subramanian discussed the need for asset allocation in the portfolio management and how various asset classes from equities gold to real estate are placed in the current economic situation.
Apart from advising to invest in equities and gold at the current levels with a five-year horizon, Shah suggested hunting for bargains in real estate. "At this time, all real estate developers are in trouble. If you are looking to buy, don't shy away from bargain hunting. For Rs 100 property, start your quote from Rs 20. Don't be ashamed of it. You could be only buyer in the town. You can buy your dream property at lowest possible price during these times," he suggests.
Stock market a time travel machine
Stock market has become a time travel machine, says Shah, where good stocks are available at cheaper valuations. "You have gone back four years to buy large-cap stocks, six years to buy midcaps and nine years to buy smallcap stocks. Very rarely in life, you get such opportunities." On the valuations front also, the markets are looking attractive. "During subprime crisis in 2008, the bottom was made when the market cap to GDP ratio was 43 per cent, as we speak, market cap to GDP ratio is 50 per cent, clearly these are the levels to buy rather than sell."
How should you make your investments? Should you wait for the discovery of a coronavirus medical solution before you invest? "If you wait for the medical solution, prices may have moved up significantly by then. Divide your funds in two parts. Keep investing one part in multiple tranches and rest you can invest when medical solution has emerged," says Shah.
Gold rally to continue
Gold is another interesting asset class that one can look at. Shah says gold had returned almost 100 per cent between 2008 and 2011 after subprime crisis when world-over interest rates were low and liquidity high. "Similar scenario is playing out now. Similar movement is expected as again interest rates are going down and the system is awash with liquidity," says Shah.
There is a China angle to the expected gold recovery also. "China has $3 dollar forex reserves, 66 per cent of which is in US dollar assets and rest in euro, yen and gold. In Texas, a class action lawsuit has been filed against China for $10 trillion compensation for COVID-19 related issues. What if Chinese assets are confiscated and used for paying COVID-19 compensation? It is an extremely improbable event, but just the fear of it happening could push China to move some of its assets from US dollar to gold. If that happens, gold prices can go further high."
Shah advised buying sovereign gold bonds if one has six to seven years of time horizon and gold ETFs for those with one-three years time horizon.
How to invest in realty?
Subramanian explained four ways of investing in real estate - listed REITs, residential or commercial property in physical form, real estate funds and real estate debentures. "REITs is the most efficient way to invest in real estate as not only it provides liquidity but also convenience to invest in smaller chunks. Currently we have only one REIT listed, but as the COVID-19 subsides, probably more developers will take the REIT route to monetise their office properties. The conventional way is to buy physical real estate, while one can also invest in real estate funds, either on the residential or the commercial side. Lastly, real estate debentures, in which people give money to real estate developers against securities such as land or other future receivables of the inventory that they would sell. One can earn up to 14-20 per cent by investing in those debentures, but it's a risky investment avenue."
Diversify in asset classes and geographies
Subramanian advised taking exposure in not only various asset classes but also different parts of the globe. There could be a situation in India, where markets may rise or fall due to unfriendly neighbour or domestic political situation. However, during the same period what happens in China or US could be different from what happens in the home country. "For example, in 2019, US, Europe and China returned 35 per cent, 28 per cent and 27 per cent, respectively, against only 10 per cent gains in the Indian market. Divergent market performance has existed in previous years also," he says.
Sectors to see recovery first
The nationwide lockdown will trigger behavioural changes. "Any company that can participate in those behavioural changes will be best companies to invest," says Shah. For example, now everyone will be conscious of his or her well-being, hence individual spend on healthcare will go up. The government will also spend more funds on healthcare infrastructure. "Every company related to healthcare be it medical or pharma companies, pathologies, hospitals and medical equipment suppliers will have better days ahead compared to the past."
"Secondly, low consumer staples will do well compared to big-ticket consumer spending and companies to be benefitting from indoor entertainment will also perform very well," he adds.