In the current endurance of epidemic outbreak we have tried to find a darkhorsestock and in a constant effort to update users with unique company having significantly strong fundamentals which can stand the crisis we were unable to find any meaning full idea . We have tried to analyse dozens of companies filtered out based on the parameters we think are fit but on deeper analysis we found that the chances of this stocks giving any meaningful risk adjusted returns or returning to the normalised earnings in quick run seem to be very thin.
As all the users know we believe in the minimum risk possible and in a way to support our philosophy we are abstaining ourselves from providing any new company this week.
One of the key reason is that we are not able to digest the fact that markets after the end of epidemic outbreak can return to normal levels at a quick pace. Even though we saw markets rallying from the low of 7511 to 9300 levels we believe it was just a pull back rally and the markets might remain confined to these levels in short term.
Generally there exists a tendency in the markets of retrenchment to at least 35% levels which if crossed can lead to further uptick but the markets on a consistent basis have failed to cross those levels.
Government Stimulus may somehow lift the market sentiment but the overall effects can be be identified only once the consumer demand starts getting back and how strong is the consumer demand emerging will only be know once the current lockdown is lifted.
Because even after lifting the lockdown , we won’t be completely out from the grave danger until there is some strong discovery on the medical front relating to either vaccine or cure for covid-19 there exists every chance of the disruption to be continuing in the near future. Infact with each passing day the spread of the virus is increasing which is directly to say decreasing the possibility of quick V-Shaped recovery. Even though high fiscal and monetary stimulus are announced , that alone would not be much fruitful in combating the economic slowdown on account of this disruption. Chances are there is more likely to be a U-Shaped or L-Shaped recovery.
Furthermore even if the lockdown is lifted, it doesn’t mean the crisis is over. The pandemic could last much longer. From a planning point of view the effects of this pandemic can be felt uptil Q2 of FY21 or even more. Since majority of the economic indicators are lagging ones its difficult to find the exact effect at this point .
Markets across all the globe are in the state of turmoil. Crude futures for instance have moved into negative territory which was major source of income for some of the gulf countries and with hospitality and tourism hit the most , these countries face further risk of economic collapse. This could lead to cascading effect on the emerging economies via withdrawal of funds , lack of inflows etc . Although emerging economic countries such as India and China are well positioned to outperform some of the other economies but large outflows of the funds can do have significant impact on the capital markets.
With Franklin Templeton mutual funds closing 6 of its debt schemes due to strong redemption , bond markets are observing tighter liquidity as a result it is going to effect even the strong , good grade bonds of strong companies.
Consumer staples are in demand but majority of stocks in this sector are already trading at rich valuations and we believe it won’t be wise to get into those stocks because supply chain disruption can further effect these stocks also.
Ray of Hope-:
Generally if we look at the past historic data , it is said that with each such recession leadership in market changes. Further if we look at the data from 2008 , small and midcaps have outperformed the large cap stocks by large margins over a period of time which same could happen this time. But again only those companies will be beneficial which are less leveraged, having better product suits and high operational profit margins accompanied by lower fixed costs.
Behavioural as all as consumer spending patterns are going to change significantly with low ticket consumer staples expected to grow reasonably while big tickets consumer durables will for a time being see some deferment until the economy is back on the track.
In terms of industry or brands to say, ultra Luxurious brands may see decline in the growth while reasonable quality brands can see decent growth with companies which are more focussed on savings , such as insurance industries, mutual fund industries etc. Banking and finance companies including NBFC can remain in the chaotic state for a while until there is a clear direction regarding the same.
Monsoon is about to start although some lower parts of the country have witnessed heavy rains in the past week. Agriculture companies such as Bayer Corp and others should do well in the coming period.
Further with significant shift in the manufacturing of the fertilisers from china to India some of the fertilisers stocks could also do well in the coming time.
The fate of Information Industry is yet to be decided since majority of the work or major contracts are received from developed economies such as United Kingdom, European nations such as Germany , France etc which are on the brink of collapse as well as United Nations which currently is one of the most affected nations across the globe with total people tested positive for corona virus of more then 9 Lakh.
We would suggest users to wait for a while before jumping on into the markets and start buying as this is the market and new opportunities are always going to emerge. So instead of feeling left out on the upward market movement , it would be wise to preserve capital at this point of time.
With declining interest rates small investors can also take the benefit of high interest rates upto 9.5% on fixed deposits offered by some of the newly started small finance banks.
Stock market is a leading Indicator while Unemployment, Recession etc are lagging indicators and it is extremely important to understand the concepts of Leading, Lagging and Coincident indicators. We have explained the same from the scratch to in detail in our Latest Short web series EFFECTS OF COVID-19 on the world economy. Please check it from the Link Below.
To understand more about Economic Indicators and its effect in context to Stock markets please watch our videos from the link above.