Sailesh Raj Bhan is the Deputy Chief Investment Officer, in-charge of equity assets, at Nippon India AMC. He has been with the company, including its previous avatar Reliance Nippon Life Asset Management, for 15 years now. An industry veteran of 24 years, Bhan spoke to BusinessLine on how the Covid-19 pandemic is impacting equity markets.

The Indian markets have been falling, fearing a growth slowdown due to the Covid-19 pandemic. How long will this pain continue for investors?

Markets and stock prices have corrected 30 per cent and have become extremely attractive. These kinds of price corrections come for a reason and hence the reaction initially is always sharp.

Markets are at three-year lows and highly attractive. On the economy front, the real slowdown is just getting visible and hence, it may have a three-month disruption in the near term.

This has already been adequately priced in the valuations of businesses, and markets will likely upfront the gains for investors. There will be ups and downs for a couple of weeks, driven by the news flow on the spread of the pandemic. This volatility must be taken advantage of to build equity allocations.

We seem to be taking cues from the US markets...

Before the sell-off began, the US market was well-priced.

They had tax cuts and lower interest rates supporting overall growth and private equity money pushing growth, which allowed companies to make profits out of all of this. It was an euphoric market. It’s not like we had any euphoria built into local valuations (before the crash).

Except one or two sectors, like consumer staples and select financials, broader markets were reasonably valued.

We have fallen because of some domestic issues like the banking sector-related news flows.

There is also ETF (exchange-traded funds)-based international allocations selling Indian holdings, which will happen as India is part of those global indices.

We were thinking of an earnings recovery in India, but now that’s probably further away. Where do you see the Indian markets going?

We are not expensively priced. We were in the worst of earnings and moderate PE multiples. In the US, earnings were strong and PE multiple was already high. In India, we have had weak earnings, and on those earnings, we were trading at moderate PE (before the crash). From a valuation point of view, we have seen enough of a correction.

There will be volatility because people see the Dow Jones in the night and come and trade in India. As stability returns, India’s advantages of lower crude, low inflation and low base of earnings will drive local markets.

Where does the collapse of YES Bank feature in all of this? YES Bank has been bailed out, but do you see its collapse as a sort of financial contagion?

I don’t see this as any contagion. Most stress in the system is visible.

If you look at it, NPA issues of a lot of banks have already been addressed by the Reserve Bank of India over the years. It’s a one-off issue, rather than a systemic issue. I don’t see any contagion from a financial system point of view.

With YES Bank, and now the Covid-19 pandemic, economic activity is going to take a hit. Doesn’t that weaken financial conditions of smaller firms?

The coronavirus is slowing down economic activities.

The RBI, and other institutions and regulators, can take care of that.

Steps like forbearance of loan repayments for some time, government measures like deferment of taxes, as seen in some other countries battling this problem, will be of help.

How is this going to impact Indian businesses? Do you think we need a fiscal stimulus to help those who have been hit by the pandemic?

A few businesses with a direct impact are airlines, travel, retail, etc, that may need support if the problem continues for more than three months. But I don’t think all of them will require a huge support. Airlines do need it because they have to pay the leases on the planes whether you are operating or not. These are cash costs. Some asset-heavy businesses will be impacted for a quarter or so. They may need some kind of support.

When do you think fiscal stimulus should be deployed?

Pure monetary stimulus is likely to be less effective if it is not backed by fiscal measures and other targeted solutions for specific sectors or segments of the economy.

A quick response on the fiscal measures side will be necessary to prevent a very deep cut in economic activity.

India can afford a lot of this, given the recent collapse in oil which can save anywhere between $30 billion and $50 billion, depending on price volatility.

This provides the necessary fiscal cushion to act.