LOCKDOWN DAY 7 DIARIES – GLIMMERS OF HOPE

We are now into Day 7 of the lockdown and yesterday was significant in many ways as there were lot of news flows which could be positive in the future which include

J&J possible vaccine in early 2021

– Gilead’s remdesivir treatment in coming weeks

– FDA oks hydroxychloroquine

– Italy curve turning down and Spain’s flattening

1. From the Indian perspective the No of new cases were highest for a single day yesterday at around 200, which is something that was expected as testing went up. However it is still in a zone which is controlled given India’s size and population. The good part was that there were also around 34 recoveries and discharges yesterday

2. The Italian development is the most positive in my view as this is something that I was expecting to happen. The No of new infections have declined sharply over the last three days from around 6000 to 5200 and then 4050 yesterday. This shows that the lockdown is working and showing its effects in around 2 weeks as the initial compliance in Italy was lower. Although death rate is high in Italy it is of old patients. No of recoveries yesterday were 1600 in Italy thus giving the lowest net increase in cases over the last three weeks

3. Italy is important for the world and also for India in more ways than one. We implemented much more stricter norms much earlier and should be able to get through much better

4. China is limping back to normalcy in just around 2 months. The factory PMI’s of China show a huge pickup in activity as they start manufacturing and ironically supplying many Covid19 fighting products to the world

5. Job losses in India are moving up. Contract workers are being let go at a rapid pace and over the last 10 years No of contract workers in the overall labour mix has gone up substantially in India from 19% to nearly 38-40% now due to the tough labour laws in India where firing after hiring is tough. Nearly 6 lakh contract workers are sitting idle in a suburb of Mumbai by the name of Bhiwandi, a textile hub.

6. It is imperative for the government to come out with a wage support package for Businesses both small and big. This is also essential for recovery post the lockdown and Covid19 crisis as if many migrate back they will not come back for atleast two months thus hampering the recovery post crisis

7. Globally we saw a sharp recovery in the markets overnight as well as in Asian trading. This is largely driven by Italian data as well as hopes of some treatment regime sooner than later. How much India will participate also depends on the second round of fiscal package by the government which is widely awaited

8. The CBOE Volatility measured by the VIX fell substantially yesterday. This could indicate that we are not well past the peak volatility phase. This is a necessary but not sufficient condition for markets to find a bottom. We will still see ups and downs but downside seems getting more and more protected now.

Overall yesterday was a day of more positive than negative developments globally. There have been moves on Vaccine Development (which is long term), possible treatment regime (which could come anytime over the next few days) and faster and cheaper testing systems being developed by many companies especially Abbot which has developed a 5 minute testing kit. The worst could be over but I am not of the view that we are in any stage of an immediate V Shaped market move. As such I am still looking at the last 2 weeks as an opportunity to BUY slowly.

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