Feeling Left Out Of The Market Rally? Deep Insights To Help You Come Out As A Winner
The markets have raced ahead and there is a feeling of missing the rally. Are you also feeling the same way? If so then read on
Markets have a way of surprising even seasoned observers. They have reached closer to the 200 day moving average on the nifty. Once they cross 11200 on the nifty we are likely to witness a further upside. A key thing to look at is the enablers and blockers which would facilitate the rise or fall depending on how things evolve or devolve.
Markets revolve around earnings. Things are not looking good in that area. The first quarter for most part of it has seen a lockdown across the nation. Apart from essential services not many set of companies have been able to look at earnings growth in even single digit terms. It is only certain categories like basic eatables, Alcoholic beverages, Mobile and Data communications, Electricity which have seen demand which is stable at the Average revenue per user level.
As far as the relief measures go the government has excluded all companies apart from private ltd companies to benefit from these measures. Bulk of the numbers in the MSME segment comprise of companies other than private limited. If not sorted at the ground level we may be a witness to closure of many companies and also see consumption levels being impacted over the medium term. As per industry leaders like State Bank of India the moratorium is not likely to be extend beyond August2020 apart from a few sectors.However as per Basel norms there is a flexibility to extend it from 90 to 180 days.It remains to be seen if this discretion is exercised by Banking authorities.
From an agricultural point of view the monsoons appear to be normal and we are likely to see some green shoots on account of reforms in the nature of allowing farmers to sell produce directly to the market. This would also help in improving their incomes in the medium term.
From a manufacturing perspective migrant labour is coming back gradually. Although as per feedback on the ground some part of labor may prefer to stay at their villages on account of the pains faced during lockdown. Automobiles particularly second hand vehicles or entry level cars may find favor with cost conscious.In the absence of action in real estate automobiles would regain its position as a leading provider of employment over the medium term starting now.
What is the way ahead?
What we think of we attract. Going forward a realistic view is a range bound market for a quarter. There are some key drivers and risks which have been ignored
1) Fall in interest rates if fails to create economic growth leads to lower growth in equity markets as the earnings are not growing.A basic tenet of equity investing is growth orientation.In the current situation we might see growth happening in pockets and gradually tide over the crisis till a vaccine is found.Many countries both on the developed and developing side are seeing their medical research teams striving for a solution.
2) Import substitution may take some time to effect growth domestically. It depends on industry to industry situation. The trade and commerce ministry is looking towards a sustainable path for import reduction. That is likely to work in favor of domestic industry should it be able to meet the cost and quality norms as needed by the consumer.
3) Private assets through private equity are not likely to deliver returns at least over the next 2 years in equity oriented opportunities as the credit cycle is yet to pick up and demand likely to be muted till things stabilize. A relevant perspective from the point of view of investors is to be looking at a ten year period or more while considering these situations and that also once things start being on track over the medium term from an India as well as a world perspective.Private equity assets have not delivered in India since the last 2 years and are not likely in the medium term. Our view is that liquid assets are likely to be the first in line to benefit from stability.
4) The recovery curve is likely to be a small v shaped recovery on account of incomes recovering slowly. In earlier downturns consumption used to take the lead and keep things stable for the economy, which seems difficult on account of low discretionary consumption. The government is also apparently expecting situation to peak around November in India from a covid cases point of view as they have extended the free food facility in the country till November.
5) In terms of opportunities we are likely to see a situation where long short strategies are likely to be out performers for the portfolio. These strategies add a lot of stability to the portfolio. Going by the track record over the last couple of years they have delivered in the late single digits depending on the fund manager even in current times. They are recommended as more suitable options to current world environment.
6) Equity investing is about the future. Markets are looking resistant in the short term and in any such scenario there is a greater chance of a fall. A buy on dips is a better strategy given the way things can turn out to be. That said a fall below 10000 levels on the nifty seems to be less likely. A big concern is the likely level of nonperforming assets rise in the banking system. That needs to be seen in the provisioning levels of banks post September quarter.
Growth in our portfolios is a function of how we decide. The idea is to allocate gradually and
plan for the medium term. May you emerge a winner.
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