Renaissance Investment’s Pankaj Murarka Says This Is An ‘Essential Metric’ For Investing Amid Rout

As India is yet to recover from the Covid-19 pandemic and earnings outlook looks hazy for the next few quarters, Renaissance Investment Managers’ Pankaj Murarka suggested looking at “stronger franchises for investing”.

“The lens through which we are looking at businesses, since there is no visibility on economic outlook or how numbers will play out in the next two-four quarters, an essential metric is to look at the inherent earnings power of the business,” the chief investment officer at the fund manager told BloombergQuint in an interview. “At the end of the crisis, stronger businesses will emerge even stronger. So look at stronger franchises.”

Murarka also said business confidence would arrive much faster than consumer confidence. That, he said, effectively means first round of recovery in the economy has to be driven by government expenditure and by private investments. “Consumers cannot be the driver of growth for Indian economy from now.”

The coronavirus pandemic threatened global growth and the International Monetary Fund has already declared a recession. In India, it disrupted an already slowing economy as the nation went into the world’s strictest lockdown to curb the virus spread. Economists have lowered India’s growth forecast for this year as they expect the nationwide lockdown to lead to an output loss.

“India would have actually had a recession with two consecutive quarters of negative growth. In FY21, India would experience negative growth, something not seen since 1980,” Murarka said. The economic implications in the short term, he said, would be even worse than during the World War as 50 percent of the world’s GDP is locked down. “One thing we know is whenever we achieve normalisation, the ‘new normal’ will be significantly below the ‘pre lockdown normal’ and the journey of returning to normal will be a marathon.”

Murarka expects the economy to normalise over the next six to 10 quarters. He bets on the sectors that are core to the economy such as industrial, auto, healthcare, information technology, telecom and financials.

Key highlights from the interview:

• Currently avoiding investing in business-to-consumer space as demand may weaken substantially.
• Expects business-to-business segment to recover faster than business-to-consumer.
• A lot of consumer staples businesses are at peak in terms of valuation and earnings potential. Avoiding investing in these companies.
• Sees consolidation in the financials space.
• Expects large lenders to gain market share at the cost of weaker ones
• Large lenders have a strong and solid risk finance system, which means the potential credit losses will be lower and they are more adequately capitalised.
• Global companies would not want to run the risk of depending only on China for supply chain and there will be a reset of global geopolitics.
• All these trends should be hugely favorable and a big tailwind for India, which is emerging as the most attractive option for manufacturing and resetting the supply chain. Expects specialty chemicals to do well.

Watch the full interview here: