Companies with strong balancesheets will bounce back faster post coronavirus crisis, says BOBCAPS

Ratnesh Kumar, MD and CEO of BOBCAPS  is of the view that is difficult to say that at these valuations the market has bottomed out because one cannot predict in these uncertain times, especially, in a scenario one has never seen where you have a chunk of the world being shut. So, i don't think there can be any mathematical sort of bottom, he said.

"The way I would look at the situation is that it is one of those huge events in 100 years whereby the world doesn’t remain the same. As market people, we have to look at managing through this downturn. You cannot predict how long the downturn in the market lasts, neither can we predict how far lower it goes. Any kind of value hunting will need to follow a path of systematic, gradual investing especially in areas where you have balancesheets, strong companies and where the business values, the asset values remain good,” he said in an interview with CNBC-TV18.

“In these kind of times of dislocations, earnings becomes less of a factor, it is more the book value, the cash that is there on the balancesheet, how the company can manage through this tough phase and as and when it ends – hopefully sooner rather than later – who is it that is going to come out of it stronger, faster." said Kumar.

The reality is that in most of the sectors, while the cost will be there, expenses will be there, revenues will not be there for two-three months, be it financials or a whole lot of the sectors. Within that context, there is no earnings based valuation which will make sense. Then it would be back down to what is there on the balancesheet, he said, adding that to that extent, I recommend looking at cash-rich companies across sectors because to get through tough phase like this and to restart the whole business after this phase is over.

"Companies with strong cash on the books will be in a better position to come back faster,” he added.

Speaking sector specific, Kumar said, “As far as insurance sector is concerned, India has been an under penetrated market. The mindsets are going to be changed be it at the public level or at the corporate level. There would be diversification of location, there would be more companies having stronger disaster recovery plans, more digitization, so all of these things will happen but naturally the insurance part was under penetrated earlier and the fact that India will have a sustained growth in insurance after this disruption phase – that does not change."

"You will have certain sectors like insurance, where the balancesheets, the cash levels because of strong regulations are quite healthy. So it is not surprising that it is one of those segments where the market is looking to value-hunt,” he added.

Domestically, it has been very encouraging that we haven't seen heavy or any meaningful redemption pressure. Much of the domestic liquidity is coming through systematic investment plans (SIPs), he said, adding that the worry is more on the foreign flow side because of the level of dislocation that you have seen in the markets across asset classes be it equity or  bonds. I see more of a risk to the foreign side of the flow than domestic.