Indian Equity Market Is ‘Mouth-Wateringly Interesting’, Says Saurabh Mukherjea
Yet to recover from the Covid-19 rout, Indian equity markets are looking “mouth-wateringly interesting” to investors who recognise one theme that will play out over the next three to nine months, Saurabh Mukherjea said.
“Just like the Goods and Services Tax, Covid-19 too will consolidate the hand of dominant franchises and the theme is that market leaders who have garnered 80-90 percent of market share will get even more entrenched,” the founder of Marcellus Investment Managers told BloombergQuint in an interview.
Indian stocks tumbled the most in more than a decade, tracking global peers, as the the coronavirus pandemic stalled trade. That prompted global central banks to take a coordinated action. The Reserve Bank of India cut rates to the lowest since 2004 and announced measures to inject liquidity. The interview with Mukherjea was conducted on Thursday, ahead of the RBI’s latest round of measures announced today, which included a reverse repo cut and steps to support banks, non-bank finance companies, and state governments.
Stocks On Marcellus Investment’s Radar
According to Mukherjea, companies with strong balance sheets which are ready to borrow cheap money, taking advantage of the central bank’s liquidity schemes, will emerge as market leaders and stocks that will bring returns. Marcellus Investment Managers has heavily bought into stocks such as Asian Paints Ltd., Relaxo Footwear Ltd., Dr. Lal Pathlabs Ltd. and HDFC Bank Ltd., which are leaders in their industries. The strategy has cut the firm’s portfolio losses to less than half of the market’s, Mukherjea said.
Another way to make money is to look at stocks which are a notch below the market leaders but still have strong balance sheets and are flush with capital, he said, citing Axis Bank Ltd., after HDFC Bank, as an example.
Mukherjea said he didn’t see any substantial challenges for information technology and pharmaceutical companies. Even auto companies, which are arguably hit, will recover soon, he said. “I don’t think there is an existential issue. Companies in all three sectors have strong balance sheets and can get some of the cheapest bond market financing in India ever in the next six months.”
Sectors in real trouble include real estate, travel and tourism, telecom and airlines that faced balance sheet issues even before the virus hit.
Mukherjea expects the global pandemic to push India into a ‘boom’ period. “For a country like us whose main competitive advantage is knowledge and human capital, whether it is via pharma or IT sector, this is a once-in-a-generation reset which could lead to the trigger for India’s fifth economic boom in 40 years,” he said.
He said that the U.S. has always gone into recession before India hit a boom period. “U.S. recession is a necessary and sufficient condition for a boom in India.”
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