Motilal Oswal’s Manish Sonthalia Has A Caveat For Investing In Markets Now
The markets may have turned volatile following the outbreak of the novel coronavirus, but Manish Sonthalia considers this an “opportunity in hindsight” for investors.
The head of equity portfolio management services at Motilal Oswal Asset Management Company said the investments are best made in tranches. “Financials remain vulnerable but the rest of the pack is well priced in terms of margin of safety, so we are putting the entire money to work,” he told BloombergQuint in an interview.
India’s benchmark indices—S&P BSE Sensex and the NSE Nifty 50—have declined by nearly 20 percent each over the past month, tracking their global peers, after fears of a pandemic spread led to the worst selloff in more than a decade and a subsequent national lockdown stalled all businesses barring essential services.
Sonthalia, however, said he would look at the financial sector with discretion. “Within this space, strong private banks with decent CASA (current and savings account) ratio, good liquidity and capital position is where we’re deploying money,” he said. After the situation settles, banks will be in a better place in terms of risk-reward position, he said.
Non-lending financials like asset managers, brokerages and insurers, Sonthalia said, would have a bigger margin of safety than financials. “Watching the space,” he said. “Looking to buy them but at lower valuation and not the current one.”
And Sonthalia expects life insurers to fare better than their general peers. “15-20 percent growth can be expected going forward (from life insurers). These are businesses with long gestation period, barriers to entry are high and visibility in terms of long-term growth is quite favourable,” he said. He suggested investing in life insurers with “decent” capital position and visibility for growth.
Banks and insurers, Sonthalia said, would be well-placed as digitisation picks up, but not non-bank lenders “as their business model is broken”. “The trust deficit which is there in the economy will only favour banks.”
Sonthalia said that the earnings of companies for FY21 would be “a complete washout” but he expects the numbers for FY22 to look good. “Base case situation is that recovery begins in FY22 and the growth numbers will look good as we’ll have a low base in FY21.”
The large-cap consumer staples, Sonthalia said, is a space where he would like to position himself. “Consumer staples is a favored area in terms of companies that will do well,” he said. “Currently these are under-owned by the market and going forward the valuations will only get pricier because there is some visibility of growth in the small ticket item.”
Business models for travel and tourism, multiplexes, airlines and retailing have been disrupted very badly, he said. “It’s a case of survival for many companies in these sectors.”