If the rural areas experience a Covid crisis, then recovery would be little more back-ended and things may be back to normal only by the end FY21 or early FY22, says CIO Equity, Kotak AMC. Gold and equity are at opposite ends -- one represents fear and the other safety. If you are buying stocks, your view is that the world will get better; if you are buying gold your view is that the world is getting worse. How come they both are at an all time high? It has been driven by liquidity which is cash all along. So to that extent, most of the asset classes are giving higher returns in recent times. But as far as equity is concerned, clearly there is a case for not to panic at the lower levels, given that the valuations have corrected. In the past two-two and a half months, we have seen a significant rally in terms of valuations. We remain a little bit cautious because earlier at least, Bharat or rural India was not really facing pandemic issues but now some of the cities which had higher number of cases in the earlier times have started flattening and the cases have moved up hinterland. So, we need to remain a little bit cautious at this point of time. As long as a fund manager has Reliance in their portfolio, it is a great market. The minute your weightage in Reliance is 5% or less than 10%, it is bad news. How are you dealing with this kind of a market where one side you have a benchmark to be and on the other side you have risk and a compulsion that you cannot go in a stock above 10%?It is very, very challenging for active managers. For example, we have been happily holding the stock for the past several years but the fact is even after holding it for several years, our weight remains an underweight given the fact that there is a cap of 10% in a single stock for active portfolio managers. To that extent, we have to make up that weight to other stocks which will also move similarly in terms of stock price performance. It is obviously challenging for active fund managers as the market is very narrow and given that you have two stocks in the index which are more than 10% at this point of time, it is difficult and challenging for active fund managers. It seems like IT could well compensate for the banking weakness globally as well? One is seeing a trend wherein tech stocks are holding up. The big five IT names are showing solid performance, solid market reaction. Is IT a firm investment for the foreseeable future?The management commentary has changed quite a bit in the last couple of months for the positive, but delivery was much better than what the Street was expecting at least from some of the large cap names. The margins have held on simply because the levers on cost cutting have been significant for some of the IT companies. From an overall revenue perspective, things have started to improve a bit. There are verticals which have been significantly affected like aviation, retail, etc. But there are also other verticals which are making up for the loss of trading within these segments. Overall, the margins are holding up and the fact remains that the IT sector has one of the best balance sheets across sectors. So, in times of crisis or when you do not have much positive news coming from elsewhere, you tend to go for IT. So, this sector clearly remains one of the areas where one could hide at this point of time. The other interesting trend which is emerging and an ancillary of higher retail participation I mean call it work from home, hobby trading, Robin Hood traders whatever term you want to give them is that platform companies tend to do very well the likes of an MCX, BSE etc. some from the unlisted universe as well do you think this is an interesting pocket to look at?Yes, at least in May and June, most of the retail brokers have seen all time high turnovers and volumes. So while it may not be getting depicted in terms of moves into mutual funds, the retail investors interest is clearly directed to direct equity participation which if it continues, then obviously will benefit some of these platforms. But for these platforms to really do well, institutional volumes have to go up. At this point of time, while there is a bit of liquidity that is getting used from a institutional perspective at least for the domestic institutions, we are not seeing any great inflows. So to that extent, institutional participation will remain muted at least in the short term. There continues to be an extreme focus on financials, There have been a spate of fundraising. You have heard some of the commentary. We still have some key numbers this week. Are you concerned at all with regards to any kind of risk to do with moratoriums or otherwise over the next few months? Do you feel we are well placed to overcome any potential challenges and continue to remain bullish on some of those leaders within that pack?The real challenge has been to assets -- the credit quality and the asset quality trends that will emerge post moratorium. But as long as the borrowers are in moratorium, it is very difficult to predict what kind of credit quality trends or credit cost will emerge for the banks and financials. On the other hand, there are a couple of financials and NBFCs which are still not fully cushioned in terms of the capital adequacy and we need to separate them out. Our belief is that the credit cost and asset quality trends will be available for the banking sector starting from December quarter onwards. That is the time you will be able to assess both the valuations you are playing and the risk that is there in the balance sheet. We are sure that not all of them are going to come out during this crisis. There will be issues that some of the financials will have to face and to that extent, we have been avoiding or being negative on NBFCs and public sector banks at this point of time. Even within the private sector banks, we have consolidated our position in the top four-five banks where capital is not going to be an issue. Some of them have already raised capital and others are in the line to raise money and we believe that going by the past trends, some of these banks are likely to come out much better in terms of the asset quality even during this time. So overall, our view on financials has been cautious and we are underweight as a basket but there are a couple of large private sector banks which we are overweight on. In terms of recovery, trickles of information suggests that things could be picking up, but on ground, it still seems like it is going to be a long painful procedure. How confident are you? What are the timelines you are looking at right now? Do you see this going well into next year or are you thinking more about three-four months down the line?There will be some sectors which will possibly start to recover much earlier than the rest of the economy, but as we pointed out earlier it was more because of the rural demand which was really coming up while some of the large metros due to large infection rates saw muted demand. The hinterland was not much affected in May and June. There was also some amount of pent up demand possibly in the months of May and June. Now I think the real question is whether the infection rates which are going up in rural areas or tier two, tier three towns will impact consumer demand? We need to see if the demand continues to remain at the June levels going forward as well or if it improves from those levels. Then we would say that there will be a couple of industries which will be back to normal by the end of this calendar year. If the rural areas start to go into a kind of crisis in terms of Covid-19, then the recovery would be little more back-ended which means that may be the end of the financial year or early part of the next financial year is when you will see normalcy coming up across the sectors.