May 3, 2020

The rich invest in time, the poor invest in money. – Warren Buffet
Stock markets enjoyed large swings on either side in March-April. Markets came tumbling down heavily by around 40% from their peaks in March and then rising again by around 30% from their recent lows. These numbers look very fancy for statisticians but for investors they become meaningless as despite markets rising by around 30% from the recent lows, their investments made over last 2-3 years are still showing losses.
Do these recent upsurge means markets have recovered and chances of going further down again are over?
Stock markets are regarded as leading indicator for future state of affairs of the economy. With economy under lock-down for over a month now, where economic activity on even basic needs of ‘Kapda & Makaan’ can’t be carried out with sole exception of ‘Roti’. Even for healthcare, except for maternity and emergency no other diseases are being attended by the doctors. Where do you see the economy is moving? Can’t see, then how come the stock markets have turned so optimist and are rising.
Markets in short term behave lot like kids. As we all know kids are quite moody and highly unpredictable on how would they react to a situation. We don’t know when they suddenly start crying out of nothing and suddenly they start jumping with joy when all family members are very serious. Similar is the behavior of stock markets in short term. Market players become optimist even upon hearing of lesser evil news and at times give a damn to even good news.
Thus far owing to various strict measures taken by government, India had been able to contain its spread in this country unlike countries in Europe, US or other continents. Lock-down has been extended to 17 May while permitting limited activities in green and orange zones. Large number of population is living in densely populated area where fear of community spread is very high. It is almost impossible to exercise complete lock-down in these area. Despite that number of reported cases are minuscule compared to the population of the area. And even among those cases that have been found positive for Corona, the death rate is less than 3%, which is usually the case with other seasonal disease also.
Thus far, owing to our strong immunity system and following some discipline we have been able to defeat corona. Above analysis will comfort government and embolden them to gradually open up all the activities in the country. Real challenge will surface when all mode of public transport viz. metro, local buses & trains etc. will be opened for public commute. And then we would know (a) whether we were able to contain corona & (b) if it surface again, what will be severity in terms of number of corona patients and ratio of death to reported cases.
We believe that whether or not its vaccine is discovered, soon we will become habitual of living with it like for other diseases taking precautions against contracting it. Traditionally we have believed “Prevention is better than cure.”
Post corona we will see substantial shift in consumer preference, life style, working processes etc. Once the lock-down is withdrawn, first three months will be spent on putting economy in order and making assessment of losses, identifying requirements of the civilization post corona and creating future strategies and plan of action to meet the requirements of new world order.
Industries will face labour shortage initially as the workers who have returned to their homes will take some time to come back. But that will not have much impact on productivity as demand for non-basic needs will take some time to pick up. During this month and half long period people have learnt to live without shopping, eating out, watching movies in multiplexes etc. And holidays will remain a dream for quite some time because of fear of recurrence of corona or caught in the middle of onslaught of any new disease.
In all likelihood towards the third quarter and with the beginning of festival season in India, we may see normalization of demand and its picking up for non-essential items. Till then people would want to ensure that things don’t get messy and they accumulate enough funds to handle any unforeseen situation for at least two years. We believe people would resort to live the traditional Indian life of living a debt-free life, so we see slow growth in high quality retail loans.
China’s behavior all through this crisis have been dubious. First it didn’t share information on corona with other countries that were likely to get affected and then it exploited them commercially during this crisis period and unfairly by supplying faulty kits and equipment.
USA is due for its election later this year. The way things have unfolded so far and if we analyse the behaviour of USA over past few years and statements of its president, USA may resort to trade or any other type of proxy war aided by other aggrieved countries.
China contributes to 24% of world manufacturing whereas India contributes to only 3%. There is strong current flowing of moving a substantial manufacturing and logistics business moving out of China. Other countries and businesses as well would want to avoid concentration risk and spread their sourcing across the globe though majorly to third world countries to avail benefit of low cost advantage.
Indian government and business houses are readying themselves to grab substantial pie of this. Government and Indian working abroad, over the years have worked hard to showcase a different image of India, which is progressive and innovative. They have established their leadership across the biggest MNCs and the way India has lead the movement against corona and have helped other countries with medicine and equipment, it has established a very high image of most dependable and able ally in times of need. It will help India attract a larger pie of the facilities moving out of China. We may see dream figure of $5 trillion economy achieved much sooner than envisaged.  
Debt for some time, avoid investing in private debt. If at all you wish to, then may be in companies with well-established business models and belonging to conglomerate business houses with diversified business interests.
Equity seems attractively valued but with fragile economy valuations looks flawed. It will remain volatile due to its behavioral bias explained above. It may take 6-9 months when one would see how our economy is shaping up. By then measures taken by the government will start showing on grounds and the economy picking up speed. And we strongly believe once our economy picks up speed, it will be difficult to catch up. Our entrepreneurs have been waiting for the opportunity and the momentum for quite some years now post demonetization. So stagger your investment over next 6-9 months.
Gold though have appreciated a lot. But still its not a bad idea to add some from 1-2 years perspective. As we expect the world economy to remain volatile for some time to come, the uncertainty will benefit gold.
Real estate have been reeling under pressure for quite long period. It may even see some more correction as companies as well as individuals would prefer to save funds. We may see demand shrinking initially for a year for commercial space. But with new businesses moving into India for manufacturing and logistics and many Indian businesses expanding capacities, larger number of people getting employment, after about 2-3 years demand for real estate will pick up momentum. But this time it may not be universal rally like last time but location specific one – true to its character.
So stay calm and remain watchful, take precaution and use the opportunity to sanitize your investments and rechristen your portfolio carefully. Review your portfolio and investment plan with your InvestmentMitra.
Please post your comments on our blog or you may email us your views or query on or whatsapp on 9958447700.
Happy Investing!
Team InvestmentMitra

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