Reflecting upon the changes that have occurred in the past one month, I am writing this blog for those investors who are willing to look past short term benefits and assuming most of the consumers would have lost the capacity to invest in long term right now. The markets have been volatile on daily basis but have spiraled down in the last one month and the daily movements are happening on the government announcements as well as the COVID-19 panic the consumers have reflecting their psyche to the market.
Macro economic views
As there were global financial crisis in 2008 most of the stocks the stock market went into a correction but this is a fall and not the correction as precedent-ed by the investors mainly because of uncertainty of the economy starting again in the short term and the investor panic because of the virus situation and increase in number of cases. Looking at the panic situation currently Indian firms have lost around Rs. 20 lakh crore in terms of valuation and even NSE Nifty 50 have tumbled down to 29%.
| Sensex | 28265.31 | -10031.98 | -26.20% |
| Nifty | 8253.80 | -2947.95 | -26.32% |
| Nifty Bank | 18208.35 | -10938.80 | -37.53% |
| Nifty IT | 12045.85 | -3167.10 | -20.82% |
| BSE Mid Cap | 10339.98 | -4260.04 | -29.18% |
| BSE 500 | 10728.88 | -3898.74 | -26.65% |
| BSE FMCG | 9898.67 | -1065.17 | -9.72% |
| BSE IT | 12126.35 | -2860.85 | -19.09% |
Overall equity markets have tumbled but it started before the virus spread and we see that no markets are considered as safe investments looking at 2008 global financial crisis and current panic situation. The worse is yet to come as the fear that virus will extend the recession and the recovery will be delayed.
Looking at the government stimulus provided as well as the stimulus provided by IMF it will be beneficiary for short term only, the oil is going down and has reached almost $20 per barrel and the rate cut for SSC also most likely will make it around 6% making a shift in consumer markets considering the investors to reshuffle their portfolio.
The damage was also seen in the bond markets
Asia Pacific 10-Year Government Bond
| |||
|---|---|---|---|
| Japan | 100.94 | +0.0130 | -0.0090 |
| Hong Kong | 114.90 | +0.7780 | -0.0020 |
| India | 102.22 | +6.1380 | -0.0710 |
| Australia | 117.81 | +0.6780 | -0.0850 |
Sectoral View
Energy remains the worst hit sector followed by financial services and real estate. Though there are exceptions such as Adani Green whose market cap multiplies 4x in the last six months and is not affected that much and similar other companies.The industries that seem to be worst hit are infrastructure companies that have debt.
Past the crisis
There can be no denial that the economy will not move into recession since the commercial activities of the business has almost stopped and post lock down businesses still suffer accounts receivables problem and also that most MSMEs do not have any security for losses in A/Rs mostly applicable in B2B businesses.
There will still be the uncertainty in how much time the markets will start to recover. If the situation starts getting better I expect the market to again start correcting itself within next 2 financial years and considering a growth in demand in India if the government starts building infrastructure projects and makes payments on time.
Investing in post virus period
There are 3 strategies in which the investors must look upon
- The investor must look upon those companies which have lost nearly 50% of the market cap in the crisis period but have strong fundamentals and a proper operating margin increasing the bottom line. There must be increase in sales volume and not increase in revenue because if inflationary prices and also a low debt company which would be strong enough to sustain in times like this.
- Having a look at distressed equity such as the airline sector, they would definitely perform as the economy tends to perform and things get normal but there are chances that they may incur losses but in such cases there is a blessing that the government may bailout the company such as few of the banks which were merged.
- Another strategy is to go more safer wherein the company has low debt to equity ratio and has high cash balance such and will remain in business for at least 20 years from now on and have also performed better in pre-virus period.
In my view the economy will recover but it will take more than a year and few structural and policy changes to support and boost the businesses.
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