India’s economic recovery is still in early stages and will gain momentum going ahead, said Raghvendra Nath, MD, Ladderup Wealth Management in an interview with Ksh*tij Bhargava of TheSpuzz Online. The market veteran added that investors should use corrections, as the one recently seen, to invest in a phased manger with an eye on the long-term. He further added that sectors such as Infrastructure, materials, corporate banks look attractive to him, keeping in mind the easing of monetary policy. Here are the edited excerpts.
How should investors deal with the kind of corrections we’ve seen recently?
Corrections in bull markets are healthy as they help in moving the shares from weaker to stronger hands and thereby help in long term sustenance of the markets. In that sense, corrections are a normal part of the bull markets and could happen due to various reasons. The current equity markets bull run is led by global and domestic economic recovery along with the opening-up of economies post Covid lockdowns. This recovery has been helped by the massive monetary and fiscal support from central banks and governments.
We believe, that as the ongoing economic recovery in the Indian economy is in the early stage and is expected to gain strength going forward. Hence, we suggest investors to use these corrections as opportunity to invest in a phased manner with a long-term perspective.
Does the Sensex, Nifty correction mean retail investors should consider pulling money out from stocks and shift to mutual funds?
A retail investor generally has a limitation of time, knowledge, and analytical resources to invest directly in stocks. Mutual funds platform provides an efficient, regulated, and cost-effective vehicle to invest in equity markets for retail investors. By paying just a small fund management cost, a mutual fund investor gets the benefit of experienced Fund Managers, who regularly track the markets and the portfolio. Therefore, we believe, for better risk management, it is prudent for a retail investor to invest in equity markets through mutual fund platform.
Some big-name IPOs have received SEBI nod, how should investors see the new age companies that are still in loss but knocking on D-street’s door?
We are living in the digital age, and lot of new age business are emerging. These companies generally are very high growth companies in terms of top line, but as these companies are in process of capturing the market share, hence, they keep on burning a lot of cash to sustain the growth trajectory. It is difficult to value these companies using traditional valuations models. Hence, generally, investors in these companies look at parameters such as, Network Effect i.e., where the value of a product or service depends on the number of users/participants, positive network effect results in improvement of value of product or service; Customer Lifetime Value i.e., the total revenue the company expects to generate during the entire customer business relationship; and Customer Acquisition Cost per new customer and Number of users or subscribers etc.
What sectors look attractive right now?
We believe that the current Economic recovery is broad based and is expected to benefit various sectors. Sectors such as Infrastructure, materials, corporate banks are expected to benefit from the easy monetary policy of central bank and fiscal support and infrastructure spending being provided by the central government.
Post covid, the acceleration in digitization trend and a focus on information technology is expected to benefit technology sector. Helped by the increased spending in healthcare both in private and public sectors the Pharma Sector should also do well. And Telecom sector is expected to benefit from the recent reform and benefits announced by the government for the sector.
Is the party in midcap and small cap stocks over?
With the recent sharp rally, the mid and small cap indices are trading at relatively elevated valuations in comparison to their historic averages. Hence, the probability of correction or a breather in the rally has increased. But, in the growth phase of the economy, the midcap and small cap companies tend to perform better. We believe that the ongoing economic recovery in the Indian economy is in the early stage and is expected to gain strength going forward, hence midcap, and small cap companies should perform better over medium to long-term. Hence, we suggest neutral strategic allocation to mid and small cap segment with the long-term investment perspective.
FAQs
Economic recovery is the business cycle stage following a recession that is characterized by a sustained period of improving business activity. Normally, during an economic recovery, gross domestic product (GDP) grows, incomes rise, and unemployment falls as the economy rebounds.
What are the signs of economic recovery? ›
What Are the Characteristics of an Economic Recovery? The signs of an economic recovery are a decrease in unemployment, an increase in consumer spending, rising incomes, an increase in the GDP, and improved business activity.
What is the economic recovery program? ›
Historic $100 billion CA Comeback Plan invests in Californians: $6.2 billion tax cut and $4 billion grant program for small businesses, $12 billion tax rebate program for two out of every three Californians, $1 billion in grants to workers who lost their jobs, and $5.2 billion in rent relief for low-income Californians ...
What are the different types of economic recovery? ›
Types of Shape of Economic Recovery
For example, a Z-shaped recovery, V-shaped recovery, U-shaped recovery, elongated U-shaped recovery, W-shaped recovery and L-shaped recovery. The alphabets generally denote the graph of growth rate, which resembles the shape of the letter.
What are the four stages of the economic recovery? ›
The economic cycle generally comprises four phases: expansion, peak, contraction, and recovery.
What are the four stages in an economic recovery increased production? ›
An economic cycle is the overall state of the economy as it goes through four stages in a cyclical pattern: expansion, peak, contraction, and trough. Factors such as GDP, interest rates, total employment, and consumer spending can help determine the current stage of the economic cycle.
How long will economic recovery take? ›
WASHINGTON, DC – Economic growth remains likely to decelerate and ultimately result in a mild recession in 2024, followed by a return to growth in 2025, according to the November 2023 commentary from the Fannie Mae (FNMA/OTCQB) Economic and Strategic Research (ESR) Group.
Will the economy recover in 2024? ›
Our forecasts call for the U.S. economy to grow 1.6% in 2024 and 1.7% in 2025. But if the U.S. labor market merely remains as resilient as it has been since late 2020, U.S. growth could be half a percentage point stronger in 2023 and 0.7 point stronger in 2025.
What is the best type of economic recovery? ›
A V-shaped recovery is characterized by a quick and sustained recovery in measures of economic performance after a sharp economic decline. Because of the speed of economic adjustment and recovery in macroeconomic performance, a V-shaped recovery is a best-case scenario given the recession.
What causes an economic recovery? ›
Promoting domestic spending on domestically produced goods and services through tax-rebate checks, stimulus checks, low interest rates and/or increased tariffs on imports. Encouraging spending from international markets through renegotiated or new trade agreements.
The California Comeback Plan provides immediate cash to middle class families and businesses hit hardest by the pandemic – expanding California's recovery efforts to reach more people, with bigger benefits.
Is there an economic recovery? ›
Federal policymakers enacted substantial relief and recovery measures in 2020 and 2021 to support the economy and relieve hardship. These measures helped fuel an economic recovery beginning in May 2020 that made the deepest recession in the post-World War II era also the shortest.
What can trigger a recovery from a recession? ›
Countercyclical monetary policy can help shorten recessions, but its effectiveness is limited in financial crises. By contrast, expansionary fiscal policy seems particularly effective in shortening recessions associated with financial cri- ses and boosting recoveries.
What happens during the recovery phase? ›
The recovery phase begins immediately after the threat to human life has subsided. The goal of the recovery phase is to bring the affected area back to some degree of normalcy. Mitigation is the effort to reduce loss of life and property by lessening the impact of disasters and emergencies.
What is an example of a recovery phase? ›
Recovery is those activities that continue beyond the emergency period to restore lifelines. Examples include providing temporary shelter, restoring power, critical stress debriefing for emergency responders and victims, job assistance, small business loans, and debris clearance…
What is the recovery phase of the trade cycle? ›
Recovery denotes the turning point of business cycle form depression to prosperity. In this phase, there is a slow rise in output, employment, income and price. Demand for commodities go up. There is increase in investment, bank loans and advances.
What are the phases of the economy? ›
Phases of the Economic Cycle
Economic cycles are identified as having four distinct economic stages: expansion, peak, contraction, and trough.
