Two Qualities AlfAccurate Advisors’ Rajesh Kothari Thinks Will Help Firms After Normalcy Returns
The Indian market is yet to recover from the Covid-19 pandemic. And when normalcy returns, portfolio manager Rajesh Kothari expects companies with strong cash flows and under-leveraged balance sheets to gain market share over the next three to five years.
“Leaders with zero debt or having a debt to equity ratio of 1:1 will have significant benefit from consolidation, while weak players might be put out of the market,” the managing director at AlfAccurate Advisors said in an interview with BloombergQuint.
The novel virus outbreak has stalled economic activities and India went into the world’s biggest lockdown to curb spreading of infections. Domestic equities tracked the worst global selloff in more than a decade before recovering some losses as large economies started announcing some stimulus.
Key highlights from the conversation:
- FY21 is going to be a washout year for most companies.
- Specialty chemicals, pharma, diagnostics, FMCG and agriculture are the sectors where the impact will be mild.
- Covid-19 has not impacted the rural India a lot. Specialty chemicals is going to recover very strongly as the production has already started since it falls within essential items.
- Short-term impact for auto ancillary is going to be significant, both locally and globally.
- Valuations have corrected a lot for these companies and increasing consolidation will be structurally positive for companies with execution capacity and strong balance sheet.
- Avoid PSU space and commodities like oil and metals. Not reading too much into oil price crash and not looking for such companies for short-term trade.
- Avoid investing in companies with weak management, weak corporate governance and weak balance sheet.
- It’s more about portfolio quality and resilient business models.
- Look at business models very closely in terms of cost, diversification within customers, geographies and products.
- Part of the cost cut is going to be permanent and it will boost return on equity for such strong business models.
- Expect normalcy to come back in September or October very gradually.
Watch the full video here: