MD & CEO, HDFC Securities
With a career spanning over two decades, Relli brings to the table a wealth of experience in banking, wealth management and financial services. Previously, he has worked with ICICI Bank and Centurion Bank of Punjab. Relli is a qualified chartered accountant and has also studied at the prestigious Indian Institute of Management, Bangalore.

How to use a sluggish market to build your equity portfolio

The domestic equity market have begun to stabilise since early October, 2019.

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The key areas of concern include the stretched fiscal situation when you include state deficits and off-balance sheet items.
India is undergoing a big transformation, which in the interim has impacted business momentum and demand in the economy. Businesses that are being unable to adapt to new changes – GST, higher competition, technology etc., are facing survival threat, while others are facing a cyclical downturn. Investments and exports have been sliding for some time now, but it is the steep consumption slowdown, which has emerged as the new pain area.

Amidst this gloom, the silver lining is that many SMEs in the manufacturing sector has received orders from global companies due to shifting of orders out of China.

The domestic equity market have begun to stabilise since early October, 2019. Though participation is skewed and limited, the market breadth has been improving, which suggests the worst could be over for the market. Although there is still skepticism about the recovery, given the global and local headwinds, we would like to stick our neck out and say that this may be a good time to accumulate quality stocks.

The government is acknowledging and acting in limited ways that they can to reverse the slowdown. Most negatives of the July budget have been reversed and there has been a big bang corporate tax cut – a relief to many companies both listed/unlisted in the near term and a structural reform that would benefit all companies in the long term.

The decision to forego revenue of Rs 1.45 lakh crore through tax cuts will have a positive impact on the country’s investment climate. India is an emerging superpower with a dynamic economic climate.

This corporate tax cut will also help companies to use the monies saved to invest in capex or return the monies to investors or consumers by way of dividends or price cuts. This could create a virtuous cycle of spending resulting in the economy revving up. EPS estimates for FY20 and FY21 may be upped and the elusive corporate earnings recovery that was missing so far could at last be witnessed (although aided by Govt largesse for now).

RBI has been doing its bit by easing monetary policy and cutting repo rates by 135 bps since February. These measures would most likely improve fundamentals of companies – which could improve flows and hence sentiments.

Valuations have become attractive especially in the mid and small cap space, though select largecaps still continue to quote at high valuations. Perhaps this reflects their relative invincibility in the disruptive times we are undergoing at present.

Investor sentiments have been low, there is widespread Trust Deficit; a lot of wealth has been eroded in the broader markets over the past two years. However, once the momentum picks up, investors will take their lessons and come back having seen similar recoveries from lows many times in the past.

Given the fact that fixed income alternatives are no longer lucrative (and carry their own set of risks), investors have little option but to keep allocating a sizeable portion of their financial assets into equities to earn above-normal returns. Recovery in sentiments could also be swift.

Investors having burnt their fingers in the past in small and midcaps may now concentrate and invest a large portion of their financial assets into quality stocks even if they seem expensive.

They also need to bring down the expectations of returns from such stocks to more reasonable levels. This coffee-can investing could result in low risk medium returns for the investors in an era when businesses are being disrupted and governance questions keep cropping up.

In times as current, investors can focus on creating a portfolio of quality stocks from different industries that can provide moderate return with low overall risk on a combined basis. They can focus on companies that are less likely to be impacted by disruption or lending distress and focus on companies that could benefit out of higher fiscal spend that is expected in FY20. This would include among others, well-run consumer and financial stocks.

In times like today, some investors make the mistake of stopping SIPs as their current value of the SIPs invested do not seem to reflect appreciation even after a couple of years. This attitude is counter- productive.

Although a review of the specific schemes is desirable, stopping SIPs will not allow Rupee cost averaging for investors and they will lose out this benefit when the markets turn up. In fact at such times they should be thinking of upping their SIP amounts.

The Indian economy is transitioning from a phase of structural reforms such as a cleaner financial sector, goods and services tax and real estate regulation and development. The economy’s core fundamentals are strong and India is on track to become a $5 trillion economy by 2025. We expect growth to tick up in the second half of 2019-20, courtesy the easy money policy of the Reserve Bank of India and the massive tax reliefs to corporates.

The second half of this financial year is expected to be better than the first half as the economy recovers from a slowdown caused by reasons including impact of structural reforms undertaken by the Modi government and the crisis gripping the global economy. The government had taken several measures including cleaning up of bank balance sheets and merger of state-owned enterprises that were long pending and these steps would help.

The key areas of concern include the stretched fiscal situation when you include state deficits and off-balance sheet items. Deposit growth, household savings, reserve money creation and money multiplier are all well below ideal levels to effect a quick turnaround in the economy, but as household debt levels moderate due to lower consumer loan growth, these should start improving. Trust deficit should reverse and bold quick policy decisions and faster delivery of justice will play a key role in achieving this.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of




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