Phir teri kahani yaad aayi....

We have seen it earlier too. In the years 2000 and 2008, the equity market corrected sharply
across the globe.
Indian stock markets retracted by 60-70% in previous severe global corrections. The carnage in
the broader markets was all the more severe!

Source: Bloomberg, Sharekhan Research

Kal Aaj aur Kal…
 Kal... the Great Fall of 2008 – Where Are We Now?
NIFTY finds bottom at PE of 11-12x trailing earnings and we are still at 20x now. But the valuations are
close to the bottom at 2.3x on a PBV basis!
NIFTY trailing P/E (Dec 2007 – Dec 2008) NIFTY trailing P/E (Mar 2019 – Mar 2020)
24.0 28.0

20.0 22.5 26.0

24.0 25.3 25.6
16.0 24.8 24.8
17.2 22.0
12.0 14.2 14.1 20.0
8.0 11.4 18.0 20.0

Nov-08
Aug-08

Oct-08
Jun-08
Dec-07
Jan-08
Feb-08

Sep-08

Dec-08
Jul-08
Apr-08
May-08
Mar-08

Nov-19
Aug-19

Oct-19
Jun-19

Sep-19

Dec-19
Jan-20
Feb-20
Jul-19
Apr-19
May-19
Mar-19

Mar-20
Nifty P/E (TTM) Nifty P/E (TTM)

NIFTY trailing P/BV (Dec 2007 – Dec 2008) NIFTY trailing P/BV (Mar 2019 – Mar 2020)

6.0 3.2

5.7 3.0
5.0
2.8 3.0 3.0
2.9
4.0 2.6 2.7
2.4
3.0 3.6
2.2 2.2
3.1 2.9 2.3
2.0 2.0
Nov-08
Aug-08

Oct-08
Jun-08
Dec-07
Jan-08
Feb-08

Sep-08

Dec-08
Jul-08
Apr-08
May-08
Mar-08

Jul-19
Apr-19

Nov-19
May-19
Mar-19

Aug-19

Mar-20
Oct-19
Jun-19

Sep-19

Dec-19
Jan-20
Feb-20
Nifty P/BV (TTM) Nifty P/BV…

Source: Bloomberg, Sharekhan Research

 Kal... the Great Fall of 2008 – Where Are We Now on Forward Earnings?
On a forward earnings basis, the NIFTY is still 15-18% higher than the bottom in 2008, both in terms
of PE and PBV valuatio

NIFTY forward P/E (Dec 2007 – Dec 2008) NIFTY forward P/E (Mar 2019 – Mar 2020)
20.0 19.0 20.0
18.0 18.0
16.0 14.5 18.2
16.0 17.4
14.0 16.3 16.3
10.1 10.6 14.0
12.0 9.7
10.0 12.0 13.8
8.0 10.0

Jul-19
Apr-19
May-19

Nov-19
Mar-19

Aug-19

Mar-20
Oct-19
Jun-19

Sep-19

Dec-19
Jan-20
Feb-20
Nov-08
Aug-08

Oct-08
Jun-08
Dec-07
Jan-08
Feb-08

Sep-08

Dec-08
Jul-08
Apr-08
May-08
Mar-08

Nifty P/E (1-yr… Nifty P/E (1-yr…

NIFTY forward P/BV (Dec 2007 – Dec 2008) NIFTY forward P/BV (Mar 2019 – Mar 2020)

4.0 3.0
3.9
3.0 2.5 2.7
2.6
2.9 2.4 2.4
2.0 2.0
2.1 2.0 2.0
1.0 1.6 1.5

Nov-19
Aug-19

Oct-19
Jun-19

Sep-19

Dec-19
Jan-20
Feb-20
Jul-19
Apr-19
May-19
Mar-19

Mar-20
Nov-08
Aug-08

Oct-08
Jun-08
Dec-07
Jan-08
Feb-08

Sep-08

Dec-08
Jul-08
Apr-08
May-08
Mar-08

Nifty P/BV (1-yr FWD) Nifty P/BV (1-yr FWD)

Source: Bloomberg, Sharekhan Research

 Aaj... Market Cap to GDP Ratio – We Are Not Far from the Bottom
The market cap to GDP ratio being at 50% is significantly lower than the long-term average of 80%.
This is close to the ratio we witnessed during the 2008 global financial crisis.

149.7

90.2
85.4 83.5 84.0
77.6 80.6 78.4
72.3 70.7
65.0 64.9 66.4
60.5
49.0 50.0
45.6
40.5
Dec-03

Dec-04

Dec-05

Dec-06

Dec-07

Dec-08

Dec-09

Dec-10

Dec-11

Dec-12

Dec-13

Dec-14

Dec-15

Dec-16

Dec-17

Dec-18

Dec-19

Mar-20
Market Cap to GDP Ratio (%)

Source: Bloomberg, Sharekhan Research

 Aaj... Earnings Yield Getting Attractive, but May Not Have Peaked!
•Due to recent market corrections, the relative attractiveness of equities vs bonds is increasing. The NIFTY’s earnings
yield is now fairly close to the 10-year bond yield, which suggests the rising attractiveness of equity versus debt.
•It remained below 1x for most of the period in the last six years (except during demonetisation). Historically, when the
earnings yield is close to the 10-year bond yield, it has been a good indicator of a NIFTY bottom.

NIFTY Earnings Yield (1-year forward) / G-Sec Yield at Multi-year High

2.5
EY/BY, which had spiked
NIFTY yield / G-Sec sharply during GFC, and has
2.0 Yield (EY/BY) had risen again due to the present
spiked during the COVID-19 crisis, highest since
Global Financial Crisis GFC (now at 1.3x)

1.5

LT average: 0.8x
1.0

0.5
Mar-05

Mar-06

Mar-07

Mar-08

Mar-09

Mar-10

Mar-11

Mar-12

Mar-13

Mar-14

Mar-15

Mar-16

Mar-17

Mar-18

Mar-19

Mar-20
Sep-05

Sep-06

Sep-07

Sep-08

Sep-09

Sep-10

Sep-11

Sep-12

Sep-13

Sep-14

Sep-15

Sep-16

Sep-17

Sep-18

Sep-19
Source: Bloomberg, Sharekhan Research
 Aaj... FII Outflow in YTD FY20 Is Higher than FY19 and 80% of FY18

1,50,000

1,00,000

50,000
Rs. cr

-50,000

-1,00,000
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 YTD
FY20

FII flows (Rs. Cr) DII flows (Rs. Cr)

Source: Bloomberg, Sharekhan Research

 Phir Kal... Handsome Returns Post Sharp Corrections

500%

405%
400% 387%

300%

200%

103% 92%
100% 79%

23% 34%
20% 13% 11%
6% 14% 9% 7%
0%
-4%
-37% -30%
-60%
-100%
Asian Financial Crisis Dot Com Bubble Global Financial Crisis

Trough 1M post Trough 3M post Trough 6M post Trough 12M post Trough Peak

Source: Bloomberg, Sharekhan Research

 Ultimately, Market Recovers, which Provides Multiple Attractive Opportunities

Mega stimulus
14000 May 2016,
Markets jump
back 10% in 1mth
12000

Sept 2013:
10000 April 2011: Market bounce back 15%
Swift 13% recovery in in next one month
next two months
8000
Aug 2009:
Sharp 83% jump from
lows within 6 months Coronavirus
6000 Sino-US Trade
Scare/ Oil
war, domestic
Dec 2015: Crises
slowdown
US First rate hike
4000 Dec 2010: since 2006 markets
Euro Debt Crisis emerge, down 10% in 2
months Dec 2016:
Markets correct 11% in
2000 July 2013: DEMO effect Nov 2016,
Sept 2008: US Sub next two months
US Quantitative easing worries market fall 9% after that
Prime Crisis, market
falls steeply by 43% mount market corrects 10%
0
Mar-08

Mar-09

Mar-10

Mar-11

Mar-12

Mar-13

Mar-14

Mar-15

Mar-16

Mar-17

Mar-18

Mar-19

Mar-20
Jun-08

Jun-09

Jun-10

Jun-11

Jun-12

Jun-13

Jun-14

Jun-15

Jun-16

Jun-17

Jun-18

Jun-19
Sep-08
Dec-08

Sep-09
Dec-09

Sep-10
Dec-10

Sep-11
Dec-11

Sep-12
Dec-12

Sep-13
Dec-13

Sep-14
Dec-14

Sep-15
Dec-15

Sep-16
Dec-16

Sep-17
Dec-17

Sep-18
Dec-18

Sep-19
Dec-19
Source: Bloomberg, Sharekhan Research
 NIFTY: Excluding the Top 20, the Next 30 Already at 5750 NIFTY Level

NIFTY Top 20 Delivered Consistent Outperformance

350
Top 20 Index: 10145,
300 Return of 24%

250

200
Nifty 50 Index : 8967,
Return of 10%
150

100

50 Bottom 30 Index : 5767,

decline of 30%
-
Sep-15

Sep-16

Sep-17

Sep-18

Sep-19
Mar-16

Mar-17

Mar-18

Mar-19

Mar-20
Apr-15

Nifty Top 20 Bottom 30

Source: Bloomberg, Sharekhan Research

 Surviving
Market Corrections…
 How to Survive in Tough Market Conditions – Do’s
SABSE BADA
RUPAIYA…
“Cash is King”
The market is under pressure amid the
ongoing global sell-off and some stocks
are available at much lower levels. But
because of a lack of clarity on how big
this cut is going to be, it is not advisable
to go all out and buy. We believe that
depending on the risk appetite and
patience for investment duration, it is
better to hold a higher cash position
and only deploy money if you are a
long-term investor. So now, “Cash is
King”.
“AAJ MERE PASS
GAADI HAI,
BANGLAA HAI, BANK
BALANCE HAI…”
“Dynamic allocation”
Investors should have dynamic assets
allocation plans to maximise return
potential while at the same time
minimizing the overall risks of the
investment portfolio.
“SAHI TIME PAR SAHI
JAGAH HONA, SAHI TIME
PAR SAHI BAAT KARNA,
AUR SAHI TIME PAR SAHI
KAAM UTHANA, ISEE KO
LUCK KEHTE HAI...”
“Sector rotation”
The top-performing sectors change in
every bull market. It was banks and
commodities that led the 1992 and
2008 rallies. Similarly, the FMCG,
Pharma and IT sectors were running the
show in the 2000 and 2015 rallies.
Investors should look at portfolio churn
from the potential underperforming
sectors to relatively outperforming
sectors in these tough market
conditions. It’s important to place a bet
on the right sector at the right time to
get a strong outperforming portfolio.
 How to Survive in Tough Market Conditions – Do’s
“RISK TOH
SPIDERMAN KO BHI
LENA PADTA HAI…”
“Take calculated risks”
Taking calculated risks based on
individual risk appetite could deliver big
returns in the long term. Investors
should look to build a long-term super
portfolio by accumulating quality stocks
in current market weakness.
“NAZDIKI FAYDA
DEKHNE SE PEHLE…
DOOR KA NUKSAAN
SOCHNA CHAHIYE...”
“Long-term wealth creation”
Investors should keep long-term wealth
creation in mind without worrying about
short-term pain. They should not break
their long-term portfolios just because of
short-term gains.
“BADE BADE DESHON
MEIN CHOTI CHOTI
BAATEIN HOTI REHTI
HAI…”
“The BIG picture”
The events of the next couple of months
are quite critical from the economic,
healthcare and policy point of view.
However, the outlook remains
constructive for the Indian economy for
the next decade, as we are already on
road to becoming a USD 5 trillion
economy. Notwithstanding near-term
uncertainties, don’t miss the big picture
and don’t let near-term issues cloud
your investment decisions.
 How to Survive in Tough Market Conditions – Don’ts
“TUMSE NA HO
PAYEGA...”
“Don’t overleverage”
Taking overleveraged bets in a falling
market could lead to huge losses.
Overleveraged trading should be
avoided in volatile market conditions, as
there is a high degree of uncertainty in
the market. It’s better to preserve
capital.
“MERE KARAN ARJUN
AYENGE…”
“Keeping false hopes”
Do not set a preconceived benchmark
price for the shares you hold. In a falling
market, holding on to stocks that do not
have strong fundamentals and waiting
for your buying price to come could
result in heavy losses. Also, do not tend
to average your investment in weak
stocks. If the price drops owing to
fundamental reasons, it is better to exit
and book losses. Don’t keep false
hopes…
“MAIN APNI FAVOURITE
HOON…”
“The BIG picture”
Avoiding news flows and corporate
developments in the company you have
invested in and sticking to one’s
Confirmation Bias could prove costly.
Discuss with your investment advisors
and figure out if anything has materially
changed in the company’s fundamentals
from the time you have invested in it.
Sticking to one’s Confirmation Bias in a
falling market will only result in
mounting losses.
Where to Invest Now…
“Successful investing is about managing risk, not avoiding it.”

– Benjamin Graham
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.

INVESTMENT PORFOLIO

SAFETY FIRST APPROACH QUALITY FIRST APPROACH OPPORTUNISTIC APPROACH

Safety First Portfolio

Conservative Approach – Limited Draw-down and Reasonable Gains

Allocation (%)
Conservative Hybrid Funds (Balanced Funds) 40%
1 Kotak Debt Hybrid Fund
2 ICICI Prudential Regular Savings Fund
3 IDFC Regular Savings Fund
Large -cap Fund (Do SIP or STP) 20%
1 HDFC Top 100 Fund
2 ICICI Pru Bluechip Fund
Alternate Asset (Debt/Gold) 25%
1 ICICI Pru Short Term Fund
2 IDFC Low Duration Fund
3 Gold ETF
Cash 15%
Total 100%
Quality First Portfolio

Defensive Portfolio with High-quality Companies –

The Right Mix for Difficult Times
Allocation (%)
Consumer Staples 40%
Asian Paints
Hindustan Unilever
Dabur India
Nestle India
Pharma 15%
Abbott Ltd
Divi’s Labs
Others 15%
Mahanagar Gas
SRF
Bharti Airtel
Banking & Financials 15%
HDFC Bank
HDFC Life
Cash 15%
Total 100 %
Opportunistic Portfolio

Take advantage of the volatility to accumulate quality companies; for

investors willing to take short-term pain for handsome long-term gains
Allocation (%)
Banking and Financials 35%
Kotak Bank
ICICI Bank
Bajaj Finance
HDFC Life
Consumers 25%
Asian Paints
Tata Consumer
Bata India
Hindustan Unilever
Trent
Speciality Chemicals + Gas 10%
SRF
Mahanagar Gas
Others 15%
Reliance Industries
Bharti Airtel
Cash 15%
Total 100%
 SIP Approach
The Best Way to Beat Market Volatility
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.

Mutual Fund – Equity Portfolio Category Stock SIP

Kotak Mahindra Bank
ICICI Pru Bluechip Fund Large-cap
Asian Paints
HDFC Top 100 Large-cap
Reliance Industries
Kotak Standard Multi-cap Fund Multi-cap Bajaj Finserv
Aditya Birla Sun Life Equity Fund Multi-cap Titan
DSP Equity Opportunity Fund Large & Mid-cap SRF
What to Avoid…
Kaun Kitne Paani Mein…
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... Kacche Dhaage

COVID-19
600.0
500.0 Sub Prime
400.0

Aviation and Travel Auto and Auto 300.0

Ancillaries 200.0
100.0
0.0

Aug/08

Aug/10

Aug/12

Aug/14

Aug/16

Aug/18
Dec/07

Dec/09

Dec/11

Dec/13

Dec/15

Dec/17

Dec/19
Apr/07

Apr/09

Apr/11

Apr/13

Apr/15

Apr/17

Apr/19
SENSEX Cap Goods Auto ConsumerDiscretionary

Source: Bloomberg, Sharekhan Research

Infra and Construction Hotels

 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

Saara Shehar mujhe Loin ke naam se jaanta hai…

Source: Bloomberg, Sharekhan Research

Everything will be okay in the end, and if it’s
not okay, it’s not the end…
Kyunki picture abhi
baaki hai mere dost!
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