Survival guide for investors – Model Investment Portfolios By Sharekhan

Where to Invest Now?

Investment strategies in tough market conditions are a lot more complicated, given the pain of draw-downs and an uncertain outlook. In a bear market, Cash is King, so ensure that you have ample liquidity to use opportunities to buy good quality stocks for the long term. Additionally, investors should use a staggered approach to invest in the market, as it would hardly show a V-shape recovery and tend to consolidate after a sharp fall over a long time.

Our past experience suggests that investing in high-quality companies always pays in the long term and these would be the first to recover when the dust settles. Further, a bear market provides ample opportunities for first-time investors to build a long-term portfolio.

Thus, we have created three distinctive portfolios keeping in mind the risk appetite of different sets of investors.

Safety First Portfolio: Conservative Approach – Limited Draw-down and Reasonable Gains

Quality First Portfolio: Defensive Portfolio with High-quality Companies – The Right Mix for Difficult Times

Opportunistic Portfolio: Take advantage of the volatility to accumulate quality companies; for investors willing to take short-term pain for handsome long-term gains

SIP Approach – Beat Volatility and Create Long-term Wealth

Despite near-term uncertainties and huge market volatility, investors who would stick to the systematic investing plan approach over the next 12-18 months would be the biggest beneficiaries in the next 3-5 years. Investing in quality companies through the stock SIP mode as well as through the mutual fund (MF) route would create wealth in the long run. We have created two baskets for the same: one is for SIP in quality companies and the second one is for SIPs through the MF route.

What to Avoid… (Vulnerables)

In a bear market, the selling pressure can be relentless and will pull down even the best of stocks. However, it is important to understand which companies are more vulnerable in terms of an adverse impact on their business due to the COVID-19 outbreak and also other factors like balance sheet issues, negative free cash flows, promoter pledge and so on. We have carefully scanned through companies under our coverage. The following are the key conclusions of our study:

• Vulnerable market segments: Generally, it is prudent to avoid small-caps and stocks with relatively poor liquidity.

• Vulnerable sectors: Certain sectors are expected to see significant impact on their businesses over the next few quarters, resulting in a downgrade of earnings estimates and valuation multiples. Consequently, these sectors could see relatively much higher selling pressure and correction. Vulnerable Sectors:

• Consumer Discretionary: Automobiles, Retail, Hotels and Travel, Aviation, Building
Materials and Construction, Engineering, among others
• Export-driven Businesses: Textiles, IT Services and Auto Ancillaries
• Banks and Financials: Weak banks and NBFCs owing to rising risk of NPAs and weaker credit demand

What to Avoid… (Vulnerables)

Defensives Better Place than Others…

There are certain sectors that are expected to do better than ever in troubled times:

• Consumer staples
• Select Pharma and specialty chemicals companies
• Life insurance companies
• Multinationals with high return ratios and a dividend-paying track record