September 28, 2020

 Bear markets and business depressions are temporary. People do not remain pessimistic forever. – Sir John Templeton


Covid phobia forced all governments across the world to enforce complete lockdown in affected areas while putting restrictions in others. This brought almost all world economies to a standstill. Priority shifted to saving lives than allowing free movement of the people thus bringing world economy to a halt.


Soon the world leaders realized that the public movement and economic activities can’t be restricted for long and they will have to learn to live with it. So they started opening the doors step by step. Already a substantial loss had been inflicted upon the economy. Now is the time to recover and get back to the normal self.


Impact on Markets:

Markets reflected these events and in March with both major Indian indices down by over 40% from their peaks. We live in a very optimistic world which presently live virtually. We are witnessing fast paced changes in technological innovation. Our preference and especially of generation Y are changing fast. And so is the mood or sentiments. As the governments started announcing packages and opening up of their economies, these announcements lifted the mood of the stock markets. In less than five months markets rose by over 50% from their lows before it started playing see-saw.


Stock Market Sentiments:

“The stock market is the story of cycles and of the human behavior that is responsible for overreactions in both directions.”  – Seth Klarman


Fall in the month of March was understandable but such fast recovery in the market without much support from the improvements in fundamentals is beyond comprehension. But will the market correct – it’s another Big question. As the events that can cause such serious downfall are more or less under control.


Corona’s situation is improving. Mortality rate has come down to below 1.5% and this is despite the fact that we are still searching for a good vaccine. China – India border tension, we had mentioned in the initial stage itself was nothing but to influence the negotiation power on other matters which has played against the China. With winters coming chances of getting it escalated to full war is almost remote. Elections in USA will be over next month.


India is readying itself for the festival season. With markets opened in most parts of the country and the companies flush with stocks, consumers are expecting good discounts this year. And this can really play to be sentiment booster for the economy. If these festivals can revive consumer spending, we are pretty confident that economy will gain momentum from there.


Fiscal Measures:

Government has passed some landmark bills in last few days especially the ones that can bring second wave of green & white revolution. Opposition to these bills is short term phenomenon unless the opposition parties find another issue to blow their trumpets.


Government has taken a lot of steps to boost the supply side but hasn’t done much to boost the demand. And unless the demand increases there is not much meaning of increasing your production. To boost demand, first it has to bring the optimism in the economy where employees have reasonable assurance of continuity of their jobs and small & mid-size entrepreneurs become hopeful of good turnover.


 Using Tax as a Tool to Increase Demand & Saving:

Government also need to rationalize its tax policies. At the moment they are bit complex for ordinary citizens. Only the practitioners can understand the benefits of the two options. Government has to make it like that an ordinary tax payer can understand what is in it for him. With rising expenditure levels to sustain a life, government must rework the basic exemptions and slabs. Also an increase in tax exemption limit under section 80C will influence individuals to contribute to the growth of the country. Government can bring in special investment product for a brief period to accumulate funds for its own requirements like it introduced long term tax free bonds around 2010-11.


Monetary Policy: 

Monetary policy committee will have its bimonthly meeting this week. It has already reduced repo rate this year by 155 basis points. It has already pumped in lot of liquidity in the market using repo rates and taking other measures. Apart from providing liquidity to the market it’s another important role is to contain inflation of essential commodities.


The central bank may show some symbolic gesture though no further liquidity is required unless markets shows signs of absorbing already available one. RBI should wait for demand to pick up, improvement in loan disbursement and other parameters to show improvement in economy and demand for more liquidity and low cost loans.



Monsoon plays a significant role in the Indian economy. India experienced better than average monsoon this year. And this year it was well spread across the country. It should bring cheers to rural economy which holds the key to economic revival. Remember rural India spends more money than the urban India compare to their incomes.


What markets behold for you:

“Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it” – Warren Buffett


Markets are likely to remain volatile for some more time. Few key events that can impact the markets are US elections, how corona fold itself and pace of normalization of the economies. So stay cautious. Keep some liquidity and invest in staggered manners if markets fall by over 10% from their recent peaks. What we expect that from the first quarter next fiscal year you will see a different world.


For short term one may consider arbitrage, ultra-short term & low duration funds with expectations toned down to 5% or around kind of return. You may also consider good quality bonds and company’s fixed deposits. P2P lending is another area catching up fast with HNI clients after the RBI increased lending limits to 50 Lakhs through this platform. Ultra conservative investors may consider guaranteed return policies of life insurance companies where one is guaranteed of return ranging between 5% & 6% tax free returns, depending on the age. These policies assure you cash flow for long term.


We would end this note quoting Wayne Gretzky “You miss 100 percent of the shots you don’t take.”


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Thank you.


Happy Investing!

Team InvestmentMitra

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