Uncertainty Lingers But Valuations Look Attractive!
Usually with the beginning of a new financial year, we see investors pumping up with hustle and bustle on D-street. However, the beginning of a new financial year is rather a grim one. Even the auspicious festivals of Navratri, Ram Navami and Easter are also failing to lift the morale of the people locked down in their homes. Manufacturing units, offices in the big and lavish towers, along with several shops, are shut. No one is in a haste to complete the usual year end compliance. Unsurprisingly, the financial markets are also despondent.
The first instinct of the market participants on D-street would be to push a delete button for FY20 memories as the domestic markets have logged their biggest yearly loss since the global financial crisis. For an overwhelming majority of the market participants, it has been a challenging year. Pondering over as to why are we saying so? For the first three quarters of FY20, despite the rising markets, it remained completely devoid of internal strength with only a handful of stocks lifting the markets higher. Further, to add to the woes of the market participants, the last quarter was melancholic with Coronavirus outbreak.
BSE Sensex reported its biggest quarterly fall in the history of the stock markets, with the benchmark index falling significantly by 29 per cent during January-March 2020 quarter. On the other hand, Nifty 50, which declined 29 per cent, recorded its sharpest quarterly fall. Not only equity but the debt portfolios have also caused similar degree of pain for many investors. The fact that the prior year (FY19) had not been great for most investors, it aggravates the worries even further. The rupee weakened about nine per cent against US dollar during the year, amid FPIs pulling out net of Rs 65,816 crore from Indian equities in the month of March 2020. Further, Brent Crude prices plummeted nearly 62 per cent to an 18-year low in FY20 on the back of slump in demand. However, as compared to the equities and other asset classes, Gold has done extremely well. Gold gave a return of about 36 per cent for FY20 to Indian investors.
With such a performance by different asset classes in FY20, it’s important for us not only to remember why diversification plays a significant role but also knowing as to why people advise not to ‘keep all your eggs in one basket’. By diversification, you are spreading your savings, instead of risking everything during times of uncertainty.
From the perspective of economic forecasting and financial markets, it’s difficult to gauge the extent of damage at this stage of fiscal year 2020-2021, which begins today! We are in a situation where it seems more like a complete dark room with absolutely no lights and on top of that, unable to find switches to turn on the lights. Until we locate the switch to turn on the lights, we will continue to be gripped in this uncertain environment. Considering the present circumstances and indications visible presently, the earnings and economic growth outlook remains heavily clouded for next the two-three quarters. However, some economists have reported their expectation but still, these are early days to assess the situation. Nomura expect Indian economy to contract by 0.5 per cent in 2020 and Moody’s Investors Service has sharply cut the growth forecast for the calendar year 2020 to 2.5 per cent from 5.3 per cent estimated earlier.
All said and done, the fast spread of COVID-19 has rattled both business and investors’ confidence and as a result, markets have fallen sharply. But as we know, the best time to invest in stock markets is when there is uncertainty and valuation in the comfort zone. The markets have bounced back after every severe fall and the fact is that good company stocks are available at attractive valuations so, one should adopt stagger behaviour for investment.
