Investors can track 5 key events to make healthy return to Street


ET Intelligence Group: After the lockdown ends, or is partially lifted, equity market investors would continue to be guided by five developments across companies and sectors:

1. NON-DISCRETIONARY CONSUMPTION OFFERING GROWTH VISIBILITY


Personal care services, footfall-dependent businesses, luxury or non-urgent products, travel, seasonal products and services, entertainment and eating out will continue to be impacted and the Street is likely to avoid such businesses. On the other hand, companies that are able to better leverage technology — edtech, healthcare and logistics — and those that are able to grab new opportunities, like adding hand sanitisers as a product , may be preferred.

2. WELL-CAPITALISED BUSINESSES

The Street would prefer companies that have money to not only stay liquid but also to remain solvent. “Covid vagaries will reveal the quality of funds available to companies — whether they have ‘real’ cash in hand that is well deployed in real liquid instruments or doubtful assets,” said Milind Sarwate, an independent director on the board of several Indian companies. “Companies that have been functioning like pass-through vehicles or in-house bankers to weaker group firms will be exposed and lose value,” he said. It will be a test for lenders, too, in terms of quality of exposure.

3. ABILITY TO PAY DIVIDENDS

When growth is difficult to achieve, investors scout for dividend-paying companies. Stocks such as ITC and Britannia surged after the companies announced higher dividends just before the lockdown.

When the Nifty lost nearly a fourth of its value in March, fund managers picked up stocks of companies with fairly good dividend yield, among other things. According to G Chokkalingam, founder of Equinomics Research & Advisory, investors would prefer shares with a dividend yield of 5-10% in the near term.

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4. AGILITY IN FORGING DEALS

The Street tends to reward the ability to forge growth-oriented deals despite the lockdown. Reliance Industries managed to strike a mega deal with Facebook regarding its Jio business during the lockdown. Similarly, pharma firms are securing drug approvals and launching them in the US. FMCG firms forged quick partnerships with delivery and logistics players to overcome distribution challenges.

5. SHORT-TERM THE NEW LONG-TERM

“Clearly, the Street will look at investing in businesses that will survive in the near term, even as the virus spreads amid the threat of a relapse and the absence of a vaccine,” said Chokkalingam. The investment style is likely to be short-term active trading instead of long-term passive investing. Several factors, like liquidity issues in the domestic financial markets, crude oil prices, and lockdown extensions across countries are lending volatility to the stock markets, pushing investors to have a short-term horizon.





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