From Moneycontrol.com

News about reopening of the economy or ‘Unlock 1' fuelled risk appetite on D-Street and that was one of the prominent reasons why D-Street managed to climb Wall of Worries. Nifty50 back above 10,000 – does this worry you as we might be walking on thin ice?

A) I think a lot of the traction that we saw in the markets from March to April and May as well was more based on fear than anything else. I think for a disease or a pandemic, with a fatality rate as low as we have with COVID-19, I don't think it significantly impacts industry over the long term.

Yes, definitely it has short-term implications such as – it will break supply chains, reduces demand, etc. But, over the long-term, we do not see this as a deterrent for the industry to bounce back.

I think it might take another 6-12 months or maximum of 18 months. We know that markets are forward-looking and the stock markets will not react based on the news, which is out there right now but what we can expect to see over the next 2-3 years.

I think the market is behaving on that rationale. We are looking into the future and thinking that I don't think it's unlikely that we do see a total recovery within 12 to 24 months and go back to higher levels than we had before Corona.

Q) During the month of March 2020, when the markets were getting into choppy waters due to the onset of COVID-19, and remember Nifty hit a low of 7500 -- True Beacon's One fund beat Nifty by 13.39%. What is driving the performance?

A) True Beacon as a fund right now is an equity plus or debt plus and equity minus kind of fund. So we have a long-only component, which is typically about 65 percent of the portfolio, and long-only focused on large-cap companies, companies in the Nifty50 only.

The balance 35 percent is a long-short portfolio, which kind of takes advantage of short-term volatility spikes in the market. This has two advantages in times of volatility.

Whenever the markets are volatile and falling very quickly, the 35 percent of the component kind of comes into the fray, it gave good returns to the amount of money allocated to it.

This helped us cover a lot of the downside from the inception. So, we do very well in times of uncertainty and volatility when the markets happen to fall a lot, True Beacon generally will outperform.

The risk profile which is very conservative is what makes True Beacon an all-weather fund. We want to outperform the benchmark over the long term, which is Nifty.

Nifty typically has done about 11-12 percent kind of return in a year and we outperform this benchmark by about 6% to 8%. So that is the essence of True Beacon.

Q) Diversification will carry whole new meaning post now especially after the outbreak of COVID-19 which impacted financial markets. What are the ways in which investors can diversify their portfolio to battle tough times?

A) Well, I think just outside of the equity universe, it's very important for everybody to have some kind of fixed income exposure. I think, government, say, for instance, a tax-free bond, which right now will give you about 4.75 percent or 4.8 percent is a great instrument to have in your portfolio.

I think at least 20-25 percent should be allocated to something like this. You should definitely have some kind of exposure to gold because it acts as a natural hedge against equity portfolios.

If you have 10-15 percent in gold, and if you've had it for a while, gold for instance has done about 25 percent in 2019, and maybe 18-19 percent so far in 2020. And this would have significantly aided your portfolio on the downside.

Outside of having exposure to equity alone, I think a balanced portfolio will have an element of commodity. A combination of all of these will make it a balanced portfolio.

In the equity segment, everybody should have some kind of exposure to the IT and pharma space. These companies typically have long term contracts which are 5-10 years long.

These sectors are relatively more immune compared to many other industries in our Nifty ecosystem. These are good places to hide in times of uncertainty.

And a combination of equity, a diversified bucket of equity, fixed income, and commodities together, I think you should be okay for all times when markets are volatile or if they are going down or if they are going up. As a long term portfolio, I think that's a good mix to have.

Q) What is your call on markets for say 6-12 months? Which sectors are likely to take a lead on the upside?

A) IT and Pharma are not high beta industries. They're not the kind of companies which do well, if the markets go up 1 percent, maybe they will go up three-quarters of a percent.

So this might not give you tremendous outperformance over what the market has overall. Not looking at it from a 6 to 12-month perspective, but a long term perspective as to how you bring balance and sanity to a portfolio per se. I think it's very important to have these defensive sectors in the portfolio.

For the next 6 to 12 months -- I think what has been beaten down the most will likely to recover the most. If we have to follow what is happening in China, we're seeing this phenomenon called revenge buying where people have come out after the virus lockdown and are buying everything from cars to bikes to homes to bags.

Consumer sectors which are benefited by consumer demand do very well in the interim. I can see a likelihood even in India that people who do not want to take public transport after the lockdown could end up buying scooters and bikes and low-value cars, the companies like Maruti, Bajaj Auto, Tata Motors, these are maybe some of the things which will do well in the near future.

Companies that are in the travel space, the hospitality space, which was beaten down a lot might recover. This is the trend we're seeing say in the American markets, for instance, where these companies which were beaten down the most be it a hotel chain or a travel chain, are bouncing really quickly. We would expect the same trend to kind of continue here, right.

Q) From your decade of experience this clearly marks a Black Swan event --- what would be your advice to listeners? What are the key takeaways from COVID-19 fall?

A) When it comes to Black Swan, the guy who coined the term Taleb, he himself seems to think this is not a black swan, but this is a white swan.

There were many hints suggesting that a pandemic like this will come about. It's just that governments and industry bodies across the world who have kind of chosen to ignore the cues which were at hand and perceive that we're immune to something like this without putting the work in.

Even though the event has happened now, I think, luckily, we are on the other side of the fear cycle. Hopefully, things pick up really quickly from here.

And, if the government is adept at incentivizing industry, and they do all that is required for people to get back out there and start manufacturing, I think we can bounce back from this very quickly. The markets are kind of reflecting that right now.

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