Buy The Pessimism, Sell The Optimism, Says Emkay Global’s Krishna Kumar Karwa

Recovery in Indian equities isn’t going to be a straight line and will see bouts of volatility and uncertainty, said Krishna Kumar Karwa, managing director of Emkay Global Financial Services, at a time when the nation’s indices have recovered by more than a third since their lows in March.

The correct way to invest in such a market is to buy the pessimism and sell the optimism, he told BloombergQuint in an interview. “Currently as we talk, optimism is increasing so it’s not the correct time to buy stocks,” he said. “You have to be careful what you’re buying into.”

Investors should part with their money only if they feel the underlying valuation of the stock is worth it, he said.

The benchmark NSE Nifty 50 has already recovered more than half of its decline so far this year, brought on by the coronavirus outbreak. That’s when optimism has returned to the market as the country begins to “unlock” economic activity after over two months of a lockdown that shuttered all but essential activity and decimated consumption.

Investors will get more chances to buy into the market in the next six months which will help “average out investments”. “Keep some gunpowder dry,” he said.

That was about when to invest. Speaking about what to invest in, Karwa said while it’s important to keep in touch with the macroeconomic environment, what pays off is to invest in the micros.

“When the IL&FS crisis happened, of course the NBFC sector was hit. But if you would’ve sold all stock, there were some blue-chip stocks also which made a massive comeback and delivered stellar returns after that,” he said. Investors should focus on the leadership and whether the company has a good balance sheet, he said.

A number of companies have given multiple disclosures over the last few months, showing a certain level of transparency and ability to come to terms with circumstances. These are the companies to invest in, Karwa said.