Abhishek Banerjee, CEO, Lotusdew said that there is a saying ‘buying to the roar of cannons and selling to the sound of trumpets". India outperformed the world during the conflict period.

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In an interview with Zeebiz's Kshitij Anand, Banerjee said that conflict-induced volatility usually leads to rallies. During the Kargil conflict in 1999 benchmark indices gained 33%. Even during Mumbai 2008 attacks, the Sensex had surged. Edited Excerpts –

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Q) What is the Ukraine crisis impacting Indian equity markets? Help us decode why investors' portfolios are losing market cap?

A) There is a saying ‘buying to the roar of cannons and selling to the sound of trumpets". India outperformed the world during the conflict period.

India is generally considered a safe haven among emerging markets (EMs). An analysis of 19 major military conflicts involving the US since 1960 shows that the Dow Jones industrial average had a lower return 11 out of 19 times.

Conflict-induced volatility usually leads to rallies. During the Kargil conflict in 1999 benchmark indices gained 33%. Even during Mumbai 2008 attacks, the Sensex had surged.

Q) The Nifty50 has turned negative so far in the year 2022 and is down by over 7% from highs. The story has not exactly turned the way Indian investors would have wanted. What should be investors' strategy?

A) The issue is that there is a general emerging market selloff due to anticipated (or perhaps when we record this - implemented) sanctions on Russia and Indian equity is getting dragged into the selloff related to Russia - primarily because of passive funds that need to rebalance automatically.

For an active investor, India is, however, considered a safe haven among EM - so we might see fund managers increase India allocation.

FPIs usually prefer quality and value in EM, our opinion is quality and/or value can underperform opening up of opportunities for smallcaps which are more niche and ignored by large FPIs to come into limelight.

Q) Equity markets across the globe are under stress. How can investors stay ahead? Do you recommend investing in a diverse portfolio of global equity? How do you pick stocks in the global portfolio?

A) As there is a flight towards safer holds of assets. Cryptos, EMs, Risky debt might see a selloff. Foreign equity especially US equity is also challenged due to a higher inflation outlook which compresses PE multiples.

That said, among the choices, US equity is interesting especially smallcaps as they are likely to be insulated from global events and reciprocal sanctions if any.

We apply AI to select stocks based on measuring investor preference. Our main USP is that we start stock screening with non-balance sheet data that we collect and process using our proprietary technology and process.

This gives us the ability to make bottom-up portfolios in any market including US and apply top-down risk and portfolio, construction mechanics. Our stock picking is purely systematic and makes it scalable for investors.

Q) How will state election results impact Indian markets in near future?

A) Elections are a sign of confidence of continuity and hence policy certainty. The budget has sent a message that government is comfortable with the current policy framework and not keen to change things policy-wise rapidly.

This makes it easier to frame business strategy and hence can provide greater predictability for earnings which can shore up equity prices.

Q) Do you think LIC IPO will crowd out other offerings? And, is it a bad time for the life insurer amid muted sentiment?

A) I think this will be value unlocking for many. Investors are updating their KYC records with LIC which can lead to payoffs where money was stuck as KYC was not complete. LIC has over 50k crore in unpaid dividends.

Some of this could find its way back into the economy and hence improve sentiment.

Q) Where is smart money seems to be moving? Many high PE stocks seem to be going through a reversal while low PE stocks are getting buying interest.

A) Let's first understand what PE means. For example, a PE of 30 means that investors are willing to pay Rs 30 for each rupee of the last 12-month earnings currently.

However, it is not the last 12-month earnings that matter but the future earnings too. As future interest rates tend to rise, this future looks less valuable as now it has to compete with higher interest rates as investor preference.

When interest rates are low, higher PE multiple can be supported. Usually in India, quality has always commanded a higher PE multiple.

As explained above, due to passive fund redemptions, we can see quality particularly hurt in the short to medium term. That means money is rotating into lower PE stocks which are of value in nature.

However, value has traditionally underperformed in India, so we will have to see how this pans out.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)