Not the time to take money out off the table, continue to invest systematically: Krishna Kumar Karwa

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1. Just as the Indian economy was coming out of the Covid-19 third wave, the Ukraine crisis has led to some heavy sell off in recent days. Do you think this would be a protracted phase of selling or would the market rebound?

The markets have been volatile since October 2021 and we have seen some sharp correction and foreign portfolio investor (FPI) selling In October/November also. There was some stability in December and then we are seeing further volatility accentuated by the Ukraine Russia crisis. FPIs were already in a sell mode because of US Fed tightening and likely interest rate moving up. The Russia Ukraine crisis has led to crude oil prices moving up. Markets are in a panic mode and there is accelerated FPI selling which is continuing in March. What we should be focusing on is the steady inflows of domestic savings into the capital markets. The SIP flows into the domestic mutual funds are Rs 10,000-12,000 crore each month and domestic institutions are buying. There are too many moving parts. I believe that the pendulum can shift to the extremes. If this panic continues and the Ukraine crisis does not get resolved, the market can go down further. Having said that at a particular level individual stocks reach their fair value and maybe what we will see is individual stocks will start forming bottoms or they will stabilize once investors start feeling that the worst is possibly discounted. I don’t know whether I have a clear cut answer, but we are surely heading for very volatile times.

2. Oil has touched multi-year highs sparking fresh fears of inflation. What impact do you see that having on markets worldwide, including India?

The impact on various companies in terms of performance because of rising crude prices and demand destruction or the margin compression they will have to play out. But once this Ukraine crisis is resolved, investors will look at the medium term opportunities and what can happen in a 12-18 months perspective. Investors will look at the valuations and accordingly invest. So finally we will go down to bottoms-up investing and see individual sectors or companies and how they are expected to perform in a normalized world. So the question one has to focus on is when are we returning to normalcy and what is the damage in between?

3. Should investors adopt caution at this point and stay away from equities or is there a chance of losing out if the global issues start getting resolved and the market does a U-turn?

As far as individual retail investors are concerned they should stick to their asset allocation. It is very important you continue to put your money as per your SIP at every level of the market. As far as your long term goals and asset allocation policy you should continue to invest regularly if you are investing through MF or advisory portfolios and if you are a direct investor you should have the right advisor to help you guide your portfolios. This is not the time to take money off the table. Having said that, can the markets correct? Yes, the markets can correct by 10-15 percent further but if you are a patient investor and you are not leveraged, then there is no reason for you to take cash calls at this point of time.

4. What role should debt and gold play in an investor’s portfolio?

These are important part of your asset allocation depending on your risk appetite and what overall returns that you expect from your portfolio. Debt is important if one is looking for regular income. Today, if you are looking to invest in debt you should look for short-dated paper. Gold is obviously very dear to Indians. In the current environment where you have geopolitical challenges gold has been performing well. So as part of your capital allocation you may invest in gold and if this crisis continues for longer than normal then you can possibly see gold harden further. Gold is obviously a store of value but doesn’t generate any income. So investors should be careful.

5. Where do you see opportunities in the current market? What are the sectors that are likely to do well post-pandemic and which ones are best avoided by investors?

The sectors that will be adversely affected are the ones that will bear the brunt of high crude oil and commodity prices. Sectors like automobiles, cement and fast moving consumer companies or consumer durables are the ones that are immediately impacted by high input prices and possibly inability to pass on the high input prices to the end consumer. They might face some demand destruction as well as margin compression. There are also companies that are having a lot of exposure to the European markets like some of the global auto ancillary companies. They will also temporarily struggle in terms of their sales but investors should also look at whether this is some kind of permanent destruction or is it temporary.  If you believe that the cement or automobiles stock prices have more than discounted expected negative news then maybe it is a time to buy for a contra investor. You should be prepared for some price correction and maybe prepared for a longer time frame before market rewards such companies. However, I think it is better to have a balanced portfolio. So even if you have to put in incremental money into the market it is better to stick to sector leaders and wherever you feel that the valuations are reasonable. We don’t know when things are going to get resolved and become normal but our basic assumptions is good companies with good track records and strong balance sheets will survive and become stronger whenever things become normal.

6. What is your view on cryptocurrencies as an investment option and how should the general investors approach this asset class?

The awareness of the average investor is limited. Once the regulators step in and regulate the way cryptos are traded, I think investors will become more and more comfortable in dealing with them. To ignore it would be wrong. I think one should start small and learn over a period of time. Somewhere I believe cryptos are also like your large-cap, small-cap and mid-cap stocks. You figure out which cryptos havethe maximum participation and maximum size and possibly start investing in them and over a period of time you can expand your portfolio gradually.