Devina Mehra And Shankar Sharma On Investing During The ‘Grandmother Of All Crises’
The impact on the real economy as a result of the novel coronavirus outbreak and the nationwide lockdown would be 100 times, if not 1,000 times greater than the global financial crisis of 2008.
That’s according to the investor couple Devina Mehra and Shankar Sharma, who are director and vice chairman at First Global, respectively. “We thought the GFC (global financial crisis) was the mother of all crises,” they told BloombergQuint in an interaction. “But this seems to be the grandmother of all crises.”
Mehra and Sharma spoke on the outcomes that would be materially different for different countries, asset classes and investors. Here’s what they said.
On Hopes For Stimulus
The demand for a stimulus isn’t new as India has been expecting a stimulus since last year’s Union Budget, Sharma said, adding the government was resolute in maintaining fiscal discipline. “After Covid-19, with lower tax revenues, there is no money the government is getting, which makes the crisis as doomsday a scenario as it can be,” he said.
He said a minor stimulus will do no good, which would only further damage the national balance sheet.
Mehra agreed, saying the government doesn’t have money even to pay its dues. “If at all the government must do something, the first step would be to pay dues,” she said. “Hoping for a stimulus is going too far.”
What’s Next For Markets
According to Mehra, “We haven’t seen the end of the bear market by a long shot”. “When markets witness a steep vertical fall, they don’t keep on falling further, regardless of what happens in the underlying economy,” she said. First Global expected a bounce back in April and went all in, she said, adding that the current rally isn’t supported by fundamentals.
At each point, investors, Mehra said, must take a view on what would happen next. “The larger trend of the economic situation and corporate earnings will remain dire.”
India Versus The World
Mehra and Sharma said changes and dislocations to the global economy are of a scale neither of them have seen. Countries like Brazil, India or Indonesia, which run higher deficits, aren’t doing well relative to other countries that have the flexibility of giving fiscal stimulus, they said.
Indians need to hunker down, Sharma said, for an extended period of very low economic activity as Covid-19 has caused serious damage, which would take a long time to heal.
The Next Bull Run
First Global invested in equities in April because of the possibilities of upside, but stayed away from financials, the investor couple said.
Sharma and Mehra were bullish on the pharmaceutical sector as it’s global in nature. Sharma said the pharma sector, which was under a cloud following inspections by the U.S. drug regulator and other governance issues, is experiencing an uptick after the global pandemic. People have come to the conclusion that everyone needs to be healthier, thus investments in healthcare and health infrastructure will do well, they said.
Some specialty chemicals firms and anything that helps people work remotely and consume remotely would do well, they said. Telecom has come back after 10-12 years in hibernation, he said.
Financials, he said, won’t lead the next bull run for multiple reasons. Pure everyday staples—where valuations remain an issue—may witness some downtrading, he said. Hence, one must play these very carefully.”
Equities Versus Other Options
“The Indian equities versus other investing options is a no-contest in favour of other options,” Sharma said, stressing on the importance of asset allocation.
“It’s a wasteland of returns in India. Indian market dollar returns are among the lowest this year, and for some time now,” Sharma said, adding Indian investors must think global if one must sustain and build wealth for the future. “The widespread bull market is not there in India for times to come.”
Mehra, however, said people must follow prudent practices of risk management while building a portfolio, within equities and while deciding allocation among asset classes. She advocated not having any outsized position on any one company or sector. She also cautioned against chasing fads, referring to the recent preference for pharma stocks in India and towards Nasdaq on the global front.
Watch the full conversation here: