May 12, 2020
“Remember not only to say the right thing in the right place, but far more difficult still, to leave unsaid the wrong thing at the tempting moment” – Benjamin Franklin
All of us have just finished hearing out our prime minister’s address to the nation. If I have to sum up his speech in three words, it would be ‘Adversity Offers Opportunities” and he seems all ready to create and encash the opportunities out of this corona crisis.
He announced that government will pump in 20 lakh crores into the economy to ensure that it fires on all its engines and grow exponentially from here on. His focus is not only on becoming self-reliant but also on revival of SME sector which is the largest employer of the workforce. During his address mention of Khadi should give indication the preference area for the government’s stimulus package.
While we wait for the Finance Minister to detail out the complete package and read the fine prints how exactly it will get rolled out and which areas will benefit more, let’s contemplate how social situation and markets may unfold over next few weeks. First of all we believe that complete package may not be announced in one go but will be announced industry or sector-wise over next few days and further on:
Number of corona infected persons have crossed 74,000 of which 24,000 recovered and close to 2400 deaths reported, compared to world’s numbers of 43lakhs infected, 15.5 lakhs recovered and aprox 2.9lakh deaths reported. We believe India thus far have been successful in containing corona virus.
There are various ways this data can be interpreted. On the positive side, death rate had been under 3% of the infected people, which is usually the case of many other seasonal infections. Over one third of the people have recovered despite the fact that there is no specific treatment for this disease as of now. It gives us confidence to say that Corona is not that dangerous as it had been played out to be or severity of its impact on infected person’s health is diminishing. If one exercise good precautions and maintain good hygiene, eat right and live a healthy life style, one need not worry much.
But remember large population of India is sitting indoors. Government had given some concession in select areas during lockdown 3.0 which is expected to be further relaxed post 17th May. In most likelihood it will be left to the state governments to decide what activities to be permitted in what area. It is to be seen what percent of workforce will be allowed to move a little freely and how they will commute and its impact on corona numbers.
Even with so many migrant workers moving in large groups to go their home, corona’s spread is still under control. We feel that biggest challenge will emerge when public transport system will be opened and all workers will be allowed to go to their workplace. At such time it will be near impossible to maintain physical distance and exercise other precautions. This is something which is very difficult to guess unless you do that.
We believe that even if with opening of public commute, the corona cases increase dramatically, it will not be fatal. We would have learnt by then living with corona and how to handle it in our body. It will definitely raise a scare but knowing the immunity of our countrymen and probably emergence of good news from severely affected countries will give us strength to face and win over it.
Impact on Equity Markets
PM’s announcement which has to be followed by finance minister’s announcement of complete package will definitely bring cheers to the market and markets may rise over next few days. But these packages will not turn the fate of the economy overnight. First fine prints have to be studied and the benefitting industries will also take time to take advantage of policies and convert it into increasing topline and bottom-line.
Also fear of sudden spread of corona on opening of public transport and other relaxation to be given to the country, along with global political & economic events, will play spoil sport for the markets. We feel that markets may initially spike a bit but then again will correct. The secular uptrend may be visible only around festival season later in the second half of the year.
What Should You Do
Government may offer tax free bonds for long term. We believe it would be a good option if offered but before recommending, we would have to see the terms of the issue whenever it comes. And for equity, make good use of the opportunity to book losses, if any around this time that you can use to offset against profits over next eight years and save on the capital gains tax. Also spread your equity investments over next 6-9 months. Some investment in gold for about a year is not a bad option either.
Such period offers good consolidation opportunity, if you have large cluttered investment portfolio then review and resize it. So contact your investment Mitra and discuss your portfolio to check how you can benefit from the situation or you may contact us, reply to this post or leave your message on 9958447700.