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?
WE DON’T
THINK SO.
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.
CORONA
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.”
ECONOMY
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.
GLOBAL PLOITICO-ECONOMY
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.
WHAT DO WE
DO NOW
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 ajay@investmentmitra.com or
whatsapp on 9958447700.
Happy
Investing!
Team InvestmentMitra
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