Editorial While foreign investors exhibit concerns over Indian shares, experts advice that is it an ideal time to bet on debt-free companies for gains in the next three-five years.
The panic over the outbreak of the global coronavirus pandemic has extended to the Indian stock markets, which saw the selling of massive volumes of shares by foreign investors. There are also several other factors behind this sell-off - the weak consumption demand and investment rate in India, the continuing banking and non-banking finance company (NBFC) crisis and the pile-up of potentially unsustainable dues at India's mobile telecom companies.
The benchmark BSE Sensex has fallen 32 per cent from its peak in just two months - mirroring the crash in other global benchmarks such as the Dow Jones, FTSE and Hang Seng Index, all of which have declined due to the coronavirus scare. But a closer analysis will reveal that India is far less affected medically by the pandemic than other major economies and that the fall in valuations have fallen below their intrinsic levels. Applying a famous Warren Buffet formula to the Indian stock market leads to the same conclusion.
Therefore, following the legendary Oracle of Omaha's sage advice, it may be advisable for foreign investors, who have been in panic mode in India (and elsewhere) to take a series of contrarian bets on well-managed Indian companies with adequate debt cover and then let the markets work their magic over a three-to-five-year investment horizon.
That is the essence of value investing and this could yield decent returns for those who are willing to go down this path.
The depreciation of the rupee against the dollar will, however, deflate their returns, but is unlikely to completely wipe out their gains over a five-year period.