After a decade of reasonable growth and rising asset prices, the economy and financial markets have been rocked by the Covid-19 pandemic. The global health crisis has forced governments to lockdown their communities, halting economic activity almost overnight and causing financial markets to reprice lower at an unprecedented speed. Challenges facing investors today is how to construct portfolios in an environment where asset prices appear disconnected from the real economy. Most domestic and international fund managers and analysts have a baseline view that economies around the world will gradually recover in the next 9-12 months’ time frame. Their economic forecast calls for a gradual and uneven healing of economic activity. The pace of recovery will affect regions, industries and individual companies differently and hence sector selection and asset allocation will be key in building resilient portfolios. But cases of infections are rising and the sting of March’s nosedive is still fresh in many investors’ memory and the markets epic rise in the last two months has made them worried about valuations. Is it that all stocks are risky stocks when the environment is uncertain? Investors should favour companies that are positioned to deliver robust earnings despite the tepid macroeconomic environment. This approach points to a high quality and growth-oriented stocks in equity portfolios and superior high rated debt instruments in the credit markets. Investors can find value among financially stable stocks whose valuations haven’t gone bonkers. A small allocation by Indian high net worth investors can be made towards arbitrage funds as a better alternative to other taxable instruments. Many analysts tracking the oil and gas sector are quite bullish on certain stocks, though the sector has been on a roller-coaster over the last few months as supply and demand issues have brought crude oil prices to low levels. Another place value investors can look at is the retail sector. One Indian company which completes the page with excellent blue chip verticals like Jio, retail and oil and gas is Reliance Industries Ltd. Analysts are betting that even though the stock has doubled in the last 6-7 months, the best is yet to come—a must in any investor’s portfolio.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.