The market was more than punished for the potential decline in earnings, opines Taher Badshah, CIO (Equities) of Invesco Mutual Fund.

He says if an investor does not make a beginning in the market now, waiting for the bottom, the probability of him/her capturing the bottom, going ahead, is low.

Do you think the worst in the stock markets is over? What is your outlook?

I think the worst is behind us. On the back of prompt and decisive actions taken by central banks around the world, the volatility in the markets is down. We will not go back to the worst wes aw in March unless there is a panic situation emerging. Markets have recovered from the previous immediate lows by about 20 per cent, both globally and in India.

It will be range-bound for a while and the upside will depend on incremental data, especially related to the virus and also how economies, including India, will emerge from the lockdown. I think it will take another one year or so to see earlier peak levels. By that time, hopefully, the lost earnings will be recouped.

What is your view on market valuations now? Is it a good time to invest in mid- and small-cap stocks?

I think the market was punished heavily due to potential loss of earnings. FY21 earnings were expected to grow by about 15 per cent, but after Covid-19, earnings growth could be zero or even negative. Let us assume the earnings fall by 5 per cent in FY21. It will be a negative surprise of 20 per cent (15%+5%) compared with earlier.

The market should have been lower by 20 per cent versus what we were at that time.

But today the market is down by about 25 per cent from its peak.

Thus, some bit of run-up and normalisation is likely.

The mid- and small-cap stocks are now trading at about 10 per cent discount to Nifty. Historically, they have traded at about a 15 per cent discount to the large-cap index. We can expect mid- and small-caps to perform better than large-caps.

Post-Covid-19, will lower valuations be the new normal?

I don’t think so. We currently have a crisis, but there was a crisis earlier as well. Markets fell steeply and have now gone to the other end of the pendulum.

Swings toward the extremes of the pendulum keep happening.

Once things fall into place and we get a better economic outlook, markets will probably be on the positive end of the pendulum.

We should regain our lost premium on valuation once the outlook becomes clear.

What domestic sectors presently offer opportunities to invest?

As and when things settle down, there will be decent value in a few stocks in banking and financial services, but caution should be exercised. Similarly, the consumer discretionary segment has also become quite attractive.

How it emerges will be a function of how the situation will be after the lockdown. Defensive sectors such as FMCG, some part of services and utilities such as telecom, utilities, pharma and technology are a few we look at to maintain balance in the portfolio.

What investing theme should one look at — value or growth?

Now, there is no much difference between both. Value is offered across the board. Some growth stocks are available at reasonable valuations. The difference is that, when things settle down, and the economic outlook looks a little more positive, the return on stock picks, value strategy or contra strategy may be slightly better than the growth strategy.

What are the top metrics an investor should look at before investing now?

An investor should be very clear about the kind of liquidity available to him for some time going forward. Investors who are tight on liquidity now should not enter the market, or they should reassess. Secondly, an investor has to know their risk profile.

If he/she has a medium risk appetite, he/she should follow a medium risk strategy and that too amulti-cap strategy.

And next, an investor now need not necessarily wait for the market to bottom or a fall by 20-30 per cent. It is a good time to start investing; it may not be the best time, but it is certainly one of the better times to start investing.

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