Shankar Sharma says about 25 chemical stocks will emerge as big winners from the coronavirus crisis

Sharma, 56, has an unerring track record of predicting bear markets and snaring bulls over the past three decades. He holds back nothing.

Mehra, chief investment strategist at First Global, on the other hand, lets Shankar enjoy all the limelight but offers very lucid analyses on global and local events. She is an alumna of IIM-Ahmedabad. She majored in Math and Statistics, is very well-read and fond of Hindi poetry.

Both are very serious foodies as evidenced by the way they flip through the voluminous menu with practiced ease.

The setting is historical in more ways than just Economics. Indian Accent is geographically placed on Lutyens' Delhi's beautiful tree-lined Lodhi Road. On one side is Hazrat Nizamuddin's dargah and on the other is Humayun's Tomb. Mehra and Shankar are sitting in the restaurant’s glass house surrounded by trees on all sides. The weather in Delhi is exquisite.

“This crisis is 10 times bigger than the 2008 bear market,” Sharma says, adding the grim economic reality has made earnings outlook foggy. “There are no models and no predictability. We used to see this in movies and I cannot believe that we have less than 150 infections in India ... there just isn't enough testing.”

The virus, which originated in China in late 2019, has killed over 7,000 people globally and has now spread to more than 160 countries. In India, the death toll stands at just three but Asia's third largest economy is on tenterhooks as it clamps down on public gatherings, a measure which includes shutting down schools, colleges, cinemas, malls and some government offices.

As always, global central bankers have swung into action to stave off a global economic collapse. Coordinated rate cuts and billions of dollars are being injected into the global financial system to provide support to beleaguered companies and crashing stock markets. Equities, however, are not in listening mode. The Dow Jones Index has hit the first lower 8 percent circuit twice in the past week. Indian stocks are worse off as foreign institutional investors have pulled out more than Rs 45,000 crore from local equities, mostly frontline Nifty stocks since late February. Lenders such as RBL Bank and IndusInd Bank are facing intense selling pressure owing to their stressed loan books.

“The government has little room to manoeuvre this time and provide a sustained support to corporate India,” says Mehra. “Unlike in 2008 India is not growing at 8-10 percent now and interest rates are already low. There is a global economic dislocation never seen before. Not even during the world wars.”

The rupee, too, is in a tailspin, down to near record lows versus the dollar. Meanwhile, the Reserve Bank of India swung into action on Monday adding Rs 100,000 crore via long-term repo swap and said that the Indian banking sector was on a strong footing. The markets, however, were expecting a rate cut to soothe strained nerves.

But Sharma says a probable rate cut is “at best a band-aid solution.”

“The RBI's tools are blunt instruments and not injections. They take time to work themselves out. We've already seen in the past two years that the RBI's policies have had little impact on economic growth.”

The International Monetary Fund (IMF) has forecast India's annual GDP growth rate for the current fiscal to come in at 4.8 percent – a steep fall from the heady days when it aspired to cross the double digit mark – as industrialists grapple with excess capacity and banks squeeze credit offtake in a bid to control rising non-performing assets.

Demand for everything from cars, two-wheelers, homes and personal loans has fallen off the cliff. Added to this grim reality is the economic dislocation caused by the rapid spread of coronavirus.

Sharma says India’s GDP growth will slow down further, in sync with its counterparts in China and elsewhere. Beijing, as it recovers from a debilitating coronavirus attack, reported a 13.5 percent fall in industrial output for January-February.

“India's macro was anyways very, very slow for the past two years. This coronavirus problem will take time to go away and Indian GDP growth may be down to 1-2 percent in the coming quarters,” Sharma added.

However, not all is bleak. Sharma says lower stock prices present an opportunity to load up on quality stocks, especially those that will benefit from China's disturbed economic environment.

“One has to go for the least worst options in equities. There are 10-25 Indian stocks in the chemicals space that will emerge as winners after this crisis settles,” Sharma said, adding that the booming digital/new age stocks will throw a lot of winners like Amazon as more people shop online. Stocks such as Netflix and those related to video conferencing like Zoom Video Communications will prosper as quarantined millions stay at home, he added.

The other thing to pay critical attention to would be with asset allocations within portfolios, Mehra says. “There can't be a 100 percent weightage given to stocks. Balance has to be in the form of gold and fixed income to tide over times like these.”

“Investors keen to benefit from this sharp slide in stock values could invest up to 25 percent of their cash into select stocks,” Sharma added.