Crisis 2020 - Where to invest safely?

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I have been a regular reader to this forum and benefited tremendously. My contribution was less so I thought to pen down my limited views to contribute to this forum. Below is my analysis and few recommendations:

Panic 1: Corona Virus
As per me, it has least impact over India as a country. We are poor nation and struggling to basic healthcare. Our fatality is far far higher for diseases for which cure is available e.g. TB, Pneumonia, Dengue, Hepatitis and so on. Statistically speaking, probability of being hit on the road is far higher than Covid-19!
As per me, Corona Virus is a developed world worry, their human life is much valued and due to lack of any vaccine their fear is far higher than us. Any death due to lack of medical treatment is a egoistic issue for them.
We have summer coming soon which is boon for India. Due to intense heat survival rate of virus drops.
Panic 2 - Oil price war
Needless to say, India is a net oil importer and this drop augurs well for us. But at the same time Rupee is depreciating so hard to estimate its impact on us. I believe net-net would NOT be negative for sure.
Panic 3: China Supply Issues
China is a global supplier of raw ,materials so current disruption will have cascading impact from across the globe. Its a near term serious issue for India especially for those sectors which imports raw materials from China. But any supply side issues are always short lived, people easily find the way to build a new capacity elsewhere. So this issue will have a short life span.

Opportunity:

I have very few but safe ideas to benefit from this opportunity which comes once in a decade. Focus is to spot the business which are grown locally and consumed locally. Below names may sound boring to many of you but they have huge margin of safety with decent appreciation ahead. Core investing idea is as summarised below:
I follow 5x10 = 25x2 rule: It means outcome will remain the same when either you invest 5/- with 10X gain vs 25/- with 2x gain. Left had side is definitely super sexy to get but very very hard to achieve while right hand side fairly predictable and achievable. So I have below recommendations based on RHS of this equation:

1- Paint Companies
Asian Paint and Berger Paint is the biggest beneficiaries. Oil derivatives (Ti2O) contributes biggest RM while there will be little drop in their demand.
2- FMCG
VST Industry: I don’t think this business has any impact of all above mentioned reasons. It will continue to sell tobacco and branded sticks, addicts gives a shit to global issues. VST Ind is slowly gaining market share from ITC and super clear to remain focused on its core business. They don’t have any diversification issues like ITC.
NESTLE: Its products are mostly for elite class of India except Maggie. I don’t see any kind of threat to its product. People won’t stop buying Katchup, Noodle, Chocolates, Coffee etc.
Pidilite: Again it’s a beneficiary of oil price drop. There is virtually no competition for its products in India.
3-Lenders
Indian Banking sector is in complete mess. PSU Banks troubles will be forever due to socialistic policies of the Govt and Pvt banks are also into deep shit e.g. Yes Bank, RBL Bank etc. So where the banking business will move too? They will be grabbed by only two lenders HDFC Bank and KM Bank! Kotak looks well placed to benefit the most. Its CEO is still young and knows banking deeply well. My Uday Kotak is a super shrewd banker and knows the art of lending way better than its peers.
SFB - AU Bank and Ujjivan are the best, they lend to poor and these folks I doubt ever heard about COVID or any other things for which world is worried right now. They continue to grow crops, sells vegetables etc. and life for them would be as usual.
Bajaj Finance: It’s already well known and researched stock. It lends to elite class of India, I hardly see any reason for a drop in demand or lack of repayment from his class.
4- Retailer
Titan: More the panic across the world more is the flight to safety which is GOLD. Titan is the best company in retail space, I don’t think Indian stop buying Gold for marriages or occasions and new investment will continue to happen in Gold. Little worry is falling Ruppe, there’s a large possibility that HNIs are buying Gold hence Rupee depreciating. Govt might regulate it so this variable remain a monitorable.

In addition to above there are opportunities in Sp Chemical or in API space but they would be short lives. As I said Supply side issues are always solvable, someone somewhere must be busy building new capacities hence a deep knowledge is must before one invests in this space. If you are sleeping and new supply comes up then it will hit your hard earn money overnight! So I don’t mean to say its not a white space but if you invest then be vigilant to monitor new supplies coming elsewhere in a world!

Good luck guys, looking forward to your valuable inputs to build a high conviction PF. It appears to be a god send opportunity to invest with conviction and get rewarded in next 1-2-3 years.

At last have a colourful and vibrant Holi!

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Your reason for the Nestle recommendation is similar to my idea for buying Hindustan Unilever once panic selling stops.

I’m willing to put my money on food producing companies such as Dabur and Tata Consumer Products when times are extremely tough and even gold drops in value.

Disclosure: Not holding any of these stocks but they are on my watch list.

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Good analysis! Why aren’t you considering few sin stocks e.g. VST Ind too? They will survive well.

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There will be more news flow and market will react accordingly but eventually markets would come back as it has always done in the past. In the meantime, we can add good company stocks for long term. There will be lot of talking about doomsday in many businesses but we all know good business always comes back.

Below 5 stocks I added in this fall for long term hold.

Dmart
Naukri
Trent
HDFC Bank
Bajaj Finance

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I know this thread is about stocks. But curious to know where are you guys investing for the debt part of your portfolio?. If one thinks about the possible impact on the GDP, even liquid funds look scary. ( But again it depends on the virus). I am thinking about overnight debt funds and gilt funds. ( I think one can live with the erosion in gilt fund due to the possible increase in bond yield. At least it should average out over a period of time). Any views?

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I exited all bond funds including liquid funds and moved to safer FDs for now till situation stabilizes. We don’t know if this might be a depression kinda scenario. The way margin calls are getting triggered, potential international banks imploding, US dollar strength, you should look at a scenario of debt funds of being unable to handle overnight spike of 6% interest rates and hence redemptions…

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For Debt, think it this way. Suppose you invest 100/- in debt fund with institute X at a%. Then X will lend it to someone with b% (b>a). After a period, you will get back you capital with a% return. Happy ending? No, why?
1- X will get (b-a)% as profit with “your” money which will help him win an additional market cap.
2- X lends money to Y which Y will invest somewhere else with RoI of c% where c>b>a.
3- Eventually X and Y have good time with your money while your return is mere a% which would be in most of the cases seldom beat the inflation while c% and b% is far higher returns for Y & X.

So, why not lend the money directly toY? This is possible if you come into equity. Simple math but not taught in any school. As an investor, you just need to be judicious in selection of well manged company Y while investing in equity.

Not sure, i answered your question but this is how i think about my investment.

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Naukri is a great platform but in reality its a cyclical business. Their main customers are IT companies where huge automation is happening and recent virus saga is not good for IT folks. There’s a good possibility for layoff if situation goes out of control so any such freeze on recruitment will impact Naukri’s fortune .

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You are right. Theoretically thats the way it works. But there are a few problems. Firstly “Well managed” is only in hindsight. You never know who gets into trouble. Second, the PE multiple wont be constant. It can drastically come down even when the earnings growth is good. So the fixed income theory will go for a toss.
(Btw my question was about the debt portion of one’s net worth. So the assumption is that person has equity allocation too)

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Looking at spread of Corona virus across the globe, I think uncertainty will continue for a dragged period of time. FII will continue to withdraw money from Indian market till some sanity prevails. So as per the base theme, I have another recommendation today to handle the present tough time:

Stock: United Breweries Ltd
Price: 892/- on 20 Mar 2020. PE of 52
Products: Kingfisher beer, Heineken and others too but small in volume
Promoters:
UB is also promoted by owners of Heineken and Carlburg brand in India via Scotish & Newcastle India (44% ownership). This indicates the seriousness of world leaders. Rest of the promoter holding is mostly with Mr Vijay Mallaya directly and indirectly via his other investment arms.
Rational:
a) Beer is consumed across India by different sectors like Tourism, Restaurants and Corporate meetings etc. Its not as addictive as cigerretes but a indeed King Of Good Time. Kingfisher has 50% market share in India.
b) Extremely low per capita consumption of about 2 litres when compared to countries like China and US which consume 37 litres and 78 litres of beer respectively per person per annum. Young demographics with 50% of the population below 25 years of age and 65% below the age of 35 years, changing culture and very low per capita consumption are key drivers of growth of beer in India. The industry has been expanding consistently and it is expected that the next year too, the Industry will grow by about 8%.
c) Alcohal culture is changing in India, women have also started participating in it though slowly. Plus overall warm weather of the nation is positive for Beer industry.
Negatives:
a) Highly regulated sector, each state has their own taxation and policies. For example, Bihas has banned it so UB is forced to close the Beer production this year. They converted the factory for manufacturing non-alcoholic beverages.
b) Corona fear will reduce the consumption heavily e.g. Tourism, People going to restaurants, Janata Curfew etc. So Q4 and possibly Q1 doesn’t look good for UB while Q2 and mainly Q3 is a lean quarter (winter) for Beer industry.
c) Competitive intensity is higher in premium segment which is fast growth area for Beer industry. Many leading brands from across the world are coming to India. But still Kingfisher will always be a choice for a local brand. UB still a leader in mass market.

Virus or no virus, Beer will remain a popular drink in India. UB price has corrected from 1483 to 892, mainly because FII (16% holding) are exiting. It might continue inline with ongoing crisis status of the pandemic further. So if one can sustain the volatility for next 1-2 quarters and assuming current crisis will slowly get contained then UB is the best placed to run once normalcy starts coming back as the King Of Good Time!

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Market is trying to place this stock to its correct deserving place.

You rightly said in your negatives that Kingfisher now has plenty competition. Kingfisher was a popular a few ago, and probably, the only brand around. But, now it has plenty competition, which is shown by its PE chart…

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Very very few players have little or no competition e.g. ITC and VST Ind for Sticks. But mostly all sectors are exposed to competition due to open market structure.
Kingfisher is leader is mass market with <100/- price point while competitors are in premium segment with prices north os 150/- plus.
Additionally, UB also has international brands like Heineken and Amstel.
But market size is too big in India, all players have a place here. As long as UB maintains the brand equity for Kingfisher, it will do well. It usually quotes at 80-90 PE which is halved now for obvious short term headwinds hence its an opportunity.