DAILY VOICE | Reopening of economy to benefit consumer discretionary, industrials and banking: Vaibhav Sanghavi

Shorter-term corrections are part and parcel of markets. However, while investing, one should be focussed on how the economy and companies are likely to perform from a longer-term perspective, saif Sanghavi.

Vaibhav Sanghavi, Co-CEO, Avendus Capital Public Markets Alternate Strategies LLP., is of the opinion that consumer discretionary, industrials and banking could lead the market as COVID-related restrictions are lifted in the coming months.

Sanghavi has more than 17 years of experience with deep domain expertise in hedge funds. Prior to joining Avendus Vaibhav, Sanghavi served as the Managing Director at Ambit Investment Advisors where he was responsible for driving their hedge fund business. During his eight-year stint with the firm, he successfully managed the largest onshore Indian hedge fund with an exemplary track record.

In an interview with Moneycontrol’s Kshitij Anand, Sanghavi said that while investing, one should be focussed on how the economy and companies are likely to perform from a longer-term perspective. Edited Excerpts:

Q) The Nifty hit fresh record highs while small & midcaps have already touched their highs last week. The economic fundamentals are hinting at the pain amid COVID pandemic. What should investors do – enter at highs or wait for a dip?

A) While we have all of the variables to deal with from an investor perspective, we should also not take away the view that markets are forward-looking.

Like last year, after COVID hit us for the first time, we saw a brisk recovery amidst all the narrative of the worsening economic situation.

Economic growth may appear weak in the short term, but it is likely to stabilise and recover back quickly once we are in business as usual.

The optimism in global economic growth and its outlook is reflected in the prices of commodities, including base metals and oil.

The robust recovery in prices may lead to inflation and the risk of sooner than expected rate hikes. However, we do think that some part of this inflation spike is transitory, and as the supply-side gets better, we may see inflation numbers getting steady.

From an investor’s perspective, what it all means is that the coming few years can post a robust growth environment including corporate earnings, which is likely to have a positive effect on the markets and share prices.

Q) Which key sectors could play a crucial role in the unlock trade and why?

A) In my view, consumer discretionary, industrials, and banking are the sectors that are likely to lead the market as we look for unlock opportunities.

Q) How are June quarter earnings likely to pan out?

A) The temporary lockdowns will have a short-term impact on the earnings, which will get reflected in the June quarter. Sectors such as aviation, hotels, autos, and other consumer discretionary sectors may get affected more.

But, in my view, investors are likely to see through the shorter-term pain to find opportunities in companies, which are affected by the temporary disruption.

Q) After a volatile May, where do you see markets headed in June? What are the key levels to watch, and any important events that could influence the trajectory of the market?

A) It is extremely difficult to predict the movement of the market for a month. However, as we stabilise from the COVID impact and as we gradually move out of lockdown, our markets might catch up for the temporary underperformance vis-a-vis other global markets.

From an important events perspective, we should closely watch the gradual pick up of lockdowns and subsequent consumer behaviour from a local perspective, while from a global standpoint close watch on inflation numbers, along with commentary on interest rates and quantitative easing programmes would merit attention.

Q) Retail investors flocked to equity markets last year or the first wave. The second wave is unlikely to see the same enthusiasm. It will grow but probably not with the same momentum. Do you see any correction that can lead to investors booking out from D-St?

A) Shorter term corrections are part and parcel of markets. However, while investing, one should be focussed on how the economy and companies are likely to perform from a longer-term perspective.

With that in mind, I am bullish on India and think that we have a good potential for consistent long-term growth. In the medium term because of many variables, both global and local, volatility may remain.

Q) What has been your strategy in dealing with COVID led volatility? Help us giving any instance or example?

A) We are a conservative fund, with capital protection at the helm of our approach in our flagship strategy. Thus, in cases of extreme volatility or any binary events, we trim our overall exposures.

This time around, as the numbers of coronavirus cases started to rise, we trimmed our exposures. Once things stabilise, is when we are likely to put our money to work again.

Q) What are your views on international diversifications?

A) The US and other developed markets have recovered very swiftly. Outlook for them with respect to economic growth and corporate earnings are buoyant.

As a natural strategy of diversification of investments, it does make sense to invest depending upon the risk profile of the investor.

Q) What are your views on bitcoin and other cryptocurrencies?

A) Newer asset classes always merit good research before one decides to invest in them. Personally, in my view, cryptocurrency is a good idea, in which I would prefer a sovereign or an equivalent backing.

Q) With Mcap hitting 3 trillion dollars, does that make you bullish or cautious?

A) It is a reflection of the excellent and robust entrepreneurship which India is blessed with. It is also a reflection of what lies ahead as our vast young population will start contributing to the economic growth on our path of progressing to being a developed economy.

From all the structural factor standpoint, the variables for long term growth are in place and thus I am bullish on India.