ValueQuest Investment Advisors’ Ravi Dharamshi said financial stocks would be a good choice in the market as restrictions from the second wave of Covid-19 are eased and the economy recovers.
The first trade is financials because every economic recovery is preceded by a boom in the credit cycle, the founder and CEO of ValueQuest said in an interview with BloombergQuint. “The good banks are willing to grow and are already growing by 12-15%. So that tells you the corporate credit cycle is returning. “
Dharamshi said he was skeptical about financial stocks last year as he feared corporate losses from the initial Covid lockdowns would be passed on to banks. “But what we saw is that the profit cycle ended up being so strong that banks didn’t face the kind of NPA problem that was expected. And that’s partly because the majority of India Inc. had previously been excused, ”he said. “What the RBI did wonderfully was to make sure that the banks are capitalizing appropriately. This is the big change that has happened and that’s why financials rallied fantastically from September through October. “
A deadly second wave of Covid-19 overwhelmed India’s health infrastructure, causing mass deaths and forcing states to reluctantly shut down some of their economies again. Although these local lockdowns are not as severe as they were last year, some economic impact is expected. However, as the number of new Covid cases declines, a handful of states have announced easing restrictions.
Dharamshi believes the markets are ready to see through the economic pain and discomfort of the second wave and focus on what will happen when the country reopens. “I would definitely prefer to play the finances to play the opening.”
There are other businesses like restaurants, tourism and travel that could see a recovery, he said. “But there aren’t too many games available to bet on in our markets.”
Survival of the fittest in real estate
Dharamshi is also optimistic in the real estate sector, but the reason for this is not the reopening of the economy. “A lot has happened in this sector.”
The sector went through the introduction of goods and services tax, demonetization, real estate law (regulation and development), the IL&FS crisis and then Covid-19, Dharamshi said. “In the past five years the industry has had about one crisis a year. If a company has managed to survive all of this, that speaks volumes about that company. “
In addition, consolidation in this sector is highest among most sectors, reducing competition to the bottom 50-60% of the market. “You can see that in the new launches,” he said.
“Usually the stock markets lead the housing boom, but the housing boom tends to last longer than the stock market boom,” he noted.