As i write this, the Indian markets are up by 3% plus, with major support from Banks and NBFC stocks. The same Financial stocks were hammered last month fearing huge buildup of NPAs due to moratorium for EMI payment. During this pandemic, Indian markets were up by 22% plus after hitting the low on 23rd march 2020. If you think this is some great returns, you will be surprised to know we are under performing other peers in Emerging Markets and the other Global indices too. Indian Markets are taking cues from strong rise in the Covid cases in India, and inching upwards.
On the other side, we are seeing a massive contraction in IIP growth and all the great research guys and rating agencies have given a liberal contraction in the growth rates on the economy. Except for few large companies other manufacturing companies had a tepid start after some relaxations from the Government, the other major concern for the manufacturing sector in the near future is the exodus of Migrant Labourers to their native and no one knows whether they going to come back or gone for good. On the agri side, India is under the worst Locust attack in the last 3 decades. On the eastern side India is facing border tension with China (source NDTV).
So, we are in major negative or uncertain times (Rise in Covid cased, Locust attack, and border tension with China). With a contraction of GDP growth, we might see unemployment levels going up, with salary cuts and less new job creation NPAs are going to rise for Banking sector. But the all equity markets are having good times as if they have a solution for all the above problems.
If we combine the performance of the Economy and the Stock Markets there is a clear disconnect. The only positive at this stage is that agricultural production has been strong thus supporting rural incomes (Locust attack predominantly on the North Western side). Monetary Policy also works in India as lending rates in India have been quite high over the last few years. With borrowing costs coming down we will see them support the underlying growth at the margin.
However the probability of a sharp bounce back of earnings next year (due to base effect) is a very real assumption and will provide downside support to the markets. My assumption will be for another 8-10% Market decline before value emerges. This should happen over the next few weeks or months. The festival season in September and October will see pent up demand play out and we will see opportunities before that. Till that time, it’s better to wait on the sidelines and watch if you want to play equities. you can also park in Short term or Ultra short term funds to make some good gains.
Happy Investing!
R♥Vi
I am providing the content on this blog solely for the general information. This blog contains my personal commentary on issues that interest me.
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