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.
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:
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."
Please do
share your feedback with us. You may also write to us for any query you may
have on personal finance. You may also whatsapp your views or query to #
9958447700 or write to info@investmentmitra.com
Thank you.
Happy
Investing!
Team InvestmentMitra
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