Adapting to a New Normal

The Indian stock market does not seem to be enjoying the same euphoria that can be seen in the western markets. On the western front there seems to be a lot of bullishness owing to the stimulus packages alongside people resuming work. In India, people have thumbed down the Rs 20 lakh crore stimulus doled out by the finance minister.

The 10% of GDP stimulus injected by the government appears too deep in the system so that it will be quite a while before any positives bubble up and create the required visibility. The stimulus does not appear to address the short-term pain and crisis for businesses and workers but has been crafted to provide growth in the medium to long term. Also, part of the stimulus package appears repetitive of schemes that already exist while some appear experimental.

As per our study, we conclude that by early July there will be a clearer picture emerging on how the economy and markets are going to evolve in the future months. One thing is clear: we humans now must accept to live with Covid as a virus in the environment. So, it is highly likely this infection will keep happening to people and most of them will recover from the same.

Now, as long as the infrastructure and beds in the hospital are able to cope up with the numbers, the situation will be considered positive and life will go on with the disease becoming an irrelevant concern. However, if the number of cases keeps overflowing and cannot be supported by the health system then the government will need to re-apply the brakes to contain the spread and this will undoubtedly slow down the economy once again.

With many a country now having eased lockdown and India also beginning to allow movement, we need to carefully watch how this pans out. It is likely that people may start getting casual and drop their defences. There can be two outcomes: one, the infection happens in manageable numbers and two, it spikes beyond control. If it is the former, then the worst appears to be behind us, and we may not hit another bottom below that of March 24, 2020. However, if it is the latter than the earlier bottom will be challenged. 

Everybody wants to be on the right side of this reading and hence all analysts will be carefully watching each day as this story plays out. As an investor, rather than taking an extreme conclusion amongst the two, we would still suggest that other than holding 10-15% in cash you can continue to stagger and keep deploying funds. The cash set aside can be used to catch any further opportunities as either of the two directions plays out.

Wanting to get a better sense on how the current situation is affecting various sectors we have taken this up in our cover story which explains in detail the outlook for some of the most important sectors that define Indian economy. Do have a look as sectoral analysis is the key in any investment process. In one of our special reports we have explained the benefits of adopting the price volume breakout strategy. In another special story we have discussed how the falling markets have attracted new investors who might become the future drivers in taking the markets forward.

In the year 2020, in spite being one of the toughest periods for the markets, on YTD basis there are at least seven stocks more than doubling with at least 19 stocks jumping by more than 50 per cent and an impressive 71 stocks that have gained more than 20 per cent on YTD basis. So, stay tuned; there will be more to cheer for in the future!

RAJESH V PADODE
Managing Director & Editor