Vetri Subramaniam, group president & head-equity at UTI Asset Management Company iS of the view that current volatility in markets will continue for a while.
According to him, most asset classes worldwide particularly commodities, bonds etc. had started to react to the COVID-19 outbreak right from the beginning of February, whereas equity markets in India as well as worldwide woke up to the threat from COVID-19 slightly late, which is why the volatility has been acute over the past month or so.
“From valuation standpoint certainly things have moved into attractive zone, but need to balance that with heightened volatility,” Subramaniam said in an interview with CNBC-TV18.
In an attempt to help the economy withstand the onslaught of coronavirus, the US Federal Reserve too a huge step on Sunday by cutting its benchmark interest rate to near zero and also said it would buy USD 700 billion in Treasury and mortgage bonds.
When asked about Fed action, he said that historically, markets have not responded immediately to Fed rate cuts. “However, what the markets are grappling with at this point of time is what is the real implication on economic activity and earnings and how long does that last. As far as that is concerned, Fed policy is enough in dealing with that risk." he said, adding that in that sense this is slightly different from the template of 2008 and 2001 and I would argue that increasingly the response to this has to come from the fiscal side rather than just the monetary side, which can paper over liquidity tightness in markets but doesn’t address the problems in the real economy.
On Yes Bank, he mentioned that normalised activity in bank will calm things down for the system.
Talking about the overall action taken by governments due to the virus and its impact on companies, he said “It’s hard to segregate the impact but travel and hospitality companies will face first order impact and second order impact will be on daily wage labourers,” he further added.
Speaking further about market behaviour, Subramaniam said, “In this selloff the midcaps, smallcaps are tending to do slightly worse than the largecaps, but from valuation perspective look at Nifty, it has gone into cheap territory on price to book. On price to earnings, certainly well below long-term average. Nifty midcap is trading at a reasonable discount to the largecap. So from valuation perspective the broad market is very much in attractive territory.”
“We need to think about risk reward, we need to think about what the outcomes can be over 1-3-5 years and not worry too much about what happens in the next one quarter. When we are buying stocks, we are paying for the business outcomes in these companies over 5-10-15 years and 25 years,” he further added.
“Now that things have gone into tailspin, this is not the best moment to try and rearrange your portfolio. Let sanity prevail and that’s the time to reevaluate if at all what you need to rebalance except for the ones, which are financially vulnerable, which have cash flow problems and which have leverage issues on their balance sheet,” added Subramaniam.