I decided to write after a gap of a day as usually it is tough to find new things to write every day and for the content to be useful and different. The last two days have been interesting in more ways than one. Day before I had written that markets will start moving up on reducing bad news and not necessarily good news and that is what played out in many global markets. The next 3-4 weeks now seem to be the ones where stock markets should find a bottom

  1. In India the No of cases seem to be stabilizing although I must say that in my city Mumbai the cases are not in control still and in the area where I live i.e. Worli we have seen the biggest spread all around. As such the possibility of Mumbai opening up after 21 days is remote.  Last 5 days all India cases show stability despite the Nizammudin incident

3rd Apr 560

4th Apr 576

5th Apr 605

6th Apr 488

7th Apr 573

  • In many of the earlier hotspot countries like South Korea and Japan things are stable and South Korea has infact continued even without major lockdown measures. Even in Japan where a few cities have seen Emergency being imposed the extent of lockdown is much less severe than in India. Where there are clear improvements are in countries like Italy, Spain and Iran which should give comfort to us too
  • SBI reduced lending and deposit rates yesterday for the second time in just around 10 days. This reduction of rates will be helpful in economic recovery once the lockdown ends as monetary policy will aid the recovery. We are still awaiting the Fiscal Stimulus package
  • It is tough to measure how much is the GDP impact per day. However assuming a Rs 2 Lakh Crores annual GDP for India the cost of the lockdown under various assumptions on a per day basis is as below
Percentage Impact on GDP Absolute Impact per day of GDP reduction
40% Rs 22000 Cr
50% Rs 27400 Cr
60% Rs 32800 Cr
70% Rs 38350 Cr

As such the overall impact of the 21 day lockdown will be between Rs 400000 Cr to Rs   800000 Cr

  • The extent of Fiscal Stimulus in major economies has varied between 5% of GDP to 20% of GDP as announced by Japan. The USA is at around 11%, Singapore 11%, Australia 10% etc. European nations as usual are still debating although some countries have announced stimulus measures. It is true that India cannot afford to go the same way. However even a 3-4% stimulus should be sufficient for us to cross through this pandemic
  • Many medicines have entered into Phase 3 Clinical Trials thus giving the hope that there will be a treatment regime within a few weeks for Covid19
  • Many companies are coming out and warning on near term growth outlook. However this is something that is largely known as if nothing is operating then obviously there is an impact. Pharmaceutical Stocks have suddenly become the market leaders. This usually happens as a sector becomes extremely underowned and a small positive trigger can take stocks up. Stocks like HUL and Nestle have also gone to new highs as fear is taking investors to safety. However such valuations will be tough to sustain and these stocks could go into a long sideway move going forward
  • Today there was an interesting interview with the Vice Chairman of Niti Aayog where he also was of the view that we cannot have an indefinite lockdown. There are many districts where there are no cases and in many where there are very few. In such places with compulsory masks and social distancing norms things could be opened up
  • The state of many industries is such that there will be imminent closures. Hotels and Hospitality are likely to see the maximum cutbacks. A recent CMIE study also indicates that joblessness in India has now shot upto 20% which is huge in numbers for a country like India.

Overall we are just 6 days away from the end of the Lockdown which might or might not happen. My guess is that in Mumbai there is likely to be an extension, however there are many cities and towns that can be and should be opened up. On the stock markets looking at yesterdays move and newsflow combined with the fact that we saw a net buying by foreign investors yesterday we seem to be entering a phase where some value buying is emerging. I think that the March bottom should now hold and the ups and downs of the next 2-4 weeks will give opportunities to add stocks that will outperform in the next cycle.

Remember, the worst month of the last 50 years in India was October 2008. Whoever bought the market on 1st November 2008 made 60% over the next 12 months (Although Nov 2008 was also a negative return month)

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