Keep an eye on ESG stocks, could grow big post COVID-19: Lav Chaturvedi

The Nifty ESG Index has been outperforming the benchmark Nifty for more than a year, and we believe ESG stocks should continue to see traction and should grow in a big way post-Covid-19, Lav Chaturvedi, ED & CEO at Reliance Securities, said in an interview with Moneycontrol’s Kshitij Anand.

Edited excerpt:

Q) What would you advise – lump sum or staggered investing approach, direct equities or mutual funds?

A) Lump-sum investment is usually advisable in a scenario when most of the risks appear to be factored in the valuations and you have a broad judgment about the quantum of risk.

During the current pandemic, the situation is extremely uncertain with regards to both containment of the crisis and subsequent recovery process.

Hence, we would advise the investors to adopt a staggered investment approach over 6 to 12 months horizon and use every dip as an opportunity to increase the investments commensurating with individual risk appetite and investment objectives.

Q) IndiaNivesh Securities' broking arm shut its operations. Do you think this could just be the starting?

A) As they say, no crisis should go waste. Our industry has experienced the Karvy episode before, and now it is IndiaNivesh. I think the industry will be up for some serious consolidation.

This could be either because of an aggressive business model or un-sustainable operating leverage. Either way, there will be consolidation and optimization of industry players. Robust risk management and customer-centricity would be a key differentiator.

Q) A lot has been talked about and spoken about COVID-19 hotspots. But where are the hotspots in terms of investment in the current scenario?

A) One can always find hotspots irrespective of situations. In the context of the current scenario, potential opportunities could be in Consumer Staples, Telecom, Healthcare and OMCs as hotspots.

Based upon how quickly we come out of lockdown with calibrated lifting up, we may see healthy recovery in sectors like Retail, Hospitality, Cement, Paints, Automobile, and Specialty Chemicals, etc.

Q) Do you think companies in the ESG space could get attention, and could probably turn out to be big winners once this (COVID-19) is over?

A) ESG sector has been gaining prominence for the last couple of years especially since topics such as global warming, climate change impact, etc. have gained momentum across the globe.

Notably, there are dedicated onshore or offshore funds, which invest only on ESG stocks, as these stocks also carry relatively low regulatory interferences.

The Nifty ESG Index has been outperforming the benchmark Nifty for more than a year. We believe the ESG stock should continue to see traction and will grow in a big way post-COVID-19.

Q) With the starting of April we also start a new financial year – what is your expectations from the FY21? What are your views on earnings, markets, flows, as well as demand?

A) The market was factoring in higher teen growth for FY21, which looks very difficult, given the current COVID-19 pandemic. In case the lockdown is not extended, the economy should come back on track over a couple of quarters.

But it is too uncertain to predict anything as of yet. We are likely to see a sharp earnings downgrade for FY21 and based upon the calibrated lifting up of lockdown and subsequent recovery there might be earnings growth in the range of 5-10 percent for FY21, which still looks to be decent given the current situation.

Q) Once the lockdown is over and we (the whole world) come out of COVID-19 --- what will be the new normal which the world will be looking at in investments, insurance, food habits, consumption, etc.?

A) Social distancing will be a new normal. The economy that so far has been focusing on sharing (Uber, WeWork, etc.) will now take a more balanced approach and will embrace distancing as a business proposition.

Focus on healthcare will grow. Also, work from home and less travel will become a new normal across sectors. This may have an impact on rental yields etc.

From the investors' perspective, they will keep looking for a better value proposition with a low degree of uncertainty. As soon as the COVID-19 crisis gets over, we believe the sectors, which have been battered badly and have the potential to revive faster will be lapped up by the investors.

Q) We have seen massive wealth erosion in most of the top-quality stocks in FY20, and as we step into FY21 some of those names could give multibagger returns if someone is investing in them now. Could you highlights 3-5 such stocks that hold that potential?

A) As we all know during these uncertain times, there are certain quality stocks that got hammered and have the potential to generate hefty returns once dust settled and economy begun to recover.

Stocks like ICICI Bank, Maruti Suzuki, Hero MotoCorp and UltraTech Cement, etc. can potentially generate relatively better returns in the large-cap space.