We are approaching the bottom very fast: Motilal Oswal

The current turbulent phase will be over soon and the market will recover fast, says stock market veteran and ace investor Motilal Oswal, MD & CEO at Motilal Oswal Financial Services. According to him, best time to invest is when gloom is around, and “we ourselves start buying our stock,” he said. Excerpts:

What we would like to call this event as unknown and unknowable in terms of its implications. Nobody knows the duration and how serious the impact will be or the number of people (it will affect). So far, we are definitely in much better position and if you look at the daily numbers, they are not worrisome and if you see week 3 and 4, the figures generally multiply but we are just seeing only a 10 per cent increase. Having said that, the next couple of weeks are very crucial and if we see a serious ramp up in numbers given the intensity of population and demography, we need to be very careful and we are watching the situation very closely.

So far, both the Centre and the State governments have handled the situation very well and created awareness. If we can manage the situation in the next couple of weeks, only then would be the time to look into its implications on the economy and markets. So, now the priority is to contain the situation effectively. Once situation is under control, we can recheck the financial and market implications.

So, it's too early to make a call on the implications of coronovirus...

Absolutely. If the numbers ramp up significantly, then we can judge the impact only after that and in that case it would be difficult to predict how long it would be. Right now, we are in a better position.　

Basically, there are two main kinds of stakeholders in terms of authority to give some relief. One is the Reserve Bank of India, which can boost liquidity and cut rates. And the second is the Centre, which can give some incentives to investors. If you look at RBI, it’s very active. Recently, it announced some measures to boost liquidity. As US Federal Reserve cut interest rate twice in the last few months, RBI can also follow suit, as we don’t know how the situation will pan out. If it turns severe, the RBI should be more liberal and largehearted.

There are millions of workers in the unorganised sectors, besides SMEs and mid and large corporates, banks and NBFCs that need liquidity. The RBI should make liquidity available in the whole system to overcome this very tight situation. I have no doubt that the RBI will rise to the occasion and do the needful as and when help is required.

Another important thing RBI can do is on provisioning. It should consider extending the window for NPA provisioning, as everyone is affected in terms of business and liquidity.

From the government’s side, there are two or three things it should do. One is on the dividend distribution tax; it amounts to double taxation. Though the recent Budget shifted the tax burden into the hands of investors, the Centre should lower the tax to the minimum possible level if not zero. The other is abolition of long-term capital gains tax.

And the third one is buyback tax, which also needs to be considered in a situation like this. Corporates should be allowed to buy back their shares using extra cash. This would be good from the corporate perspective, given the fall in stock prices, as a lot of cash-rich companies would like to buy back their shares from the market to stabilise the prices. I don't think buyback tax is happening anywhere in the world. It is the right time for it to be taken away.

Given the current stress situation, these are the things that they (RBI and the Government) can do to boost corporate and market sentiment.

See, basically equity is an asset class, which is bought with a long-term perspective. One needs to have patience, though the fall has been very sudden. But this has happened many times in the past, and recovery has also been very fast. I am sure in the next one to three years, the recovery will also be very fast. But the question is from where it takes off. One should have patience and not panic now. My advice is keep buying slowly through SIPs and add more money on every fall as nobody is sure where the bottom would be. The best time to buy is when gloom is around and I see we are definitely approaching the bottom very fast.

No, most of them recovered, except stocks of some bad-quality companies. For instance, stocks such as Maruti, after a little recovery, they move fast. So, investors should look at both quality of management and quality of business and in most companies where the return on capital is good. In fact, we also start buying our stock in the current situation.

No. That will create panic. I feel market forces should be allowed to transact business freely. The call for banning short-selling or closing down the markets will create panic and more selling only. I feel the wise thing is to allow the market to settle down on its own.