Many assumptions regarding GDP growth and earnings estimates will radically change for FY21, believes Manish Gunwani , CIO – equity investments, Nippon India Mutual Fund. In an interview with Ashley Coutinho , he says a lot of stocks are pricing in an extended slowdown and present attractive risk-reward trade-offs. From an economic standpoint, the pandemic is likely to create a deep impact in the short term as many industries have ground to a halt, which is unprecedented. As far as the market reaction is concerned it is understandable from a near term perspective as many assumptions regarding GDP growth, earnings estimates, etc will radically change for FY21. From a longer term perspective we believe a lot of stocks are pricing in an extended slowdown and present attractive risk-reward trade-offs. We are not increasing cash calls at all and find the market more attractive today than three months ago, as valuations are much cheaper. In terms of reallocating money to a certain extent we are averaging some of the cyclical stocks we own and also adding to sectors which benefit from rupee depreciation. The near term outlook is challenging, but over time the large banks with good liability franchise and diversified asset base should emerge as winners. The theme we are advocating is buying the best balance sheet in cyclical sectors so that when the economy stabilises the survivors benefit significantly both from macro tailwind and market share gain from weaker players. While the near term returns have been weak, we believe that the market is attractively positioned for investors to increase lump-sum allocation.
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