The last week as we went through the first phase of the Lockdown2 can be called one that of hope. The number of new cases in India have stopped accelerating, recoveries have picked up and the number of testing has increase on a daily basis. Global stock markets help up well this week and newsflow on a possible medicine working on Covid19 improved sentiments. As I have always maintained a medicine or medicines regime will be gamechanger in our entire assessment of the crisis and its aftermath

  1. The RBI came out with further liquidity measures yesterday and also cut the reverse repo rate. The liquidity measures in terms of LTRO2 for NBFCs as well as extending the Real Estate projects loan benefits of NPA recognition to them was a positive. The cut in Reverse Repo rate to 3.75% will also aid recovery once the economy opens up. However the requirement of provisioning on loans which go in for the moratorium and that also 10% is too huge. It could potentially take away most of the benefits of the measures announced by RBI. RBI needs to recognize that it was a compulsory recast for whoever wanted it and after allowing that they cannot force banks to provide for the same. Even if provisioning was required it should have been 2% per quarter instead of 5% as the 10% provisioning could block a lot of capital of banks. Lets hope better sense will prevail here
  2. Globally the market performance was strong this week with some distinction also getting built in for countries that have the disease under relative control and have also announced good fiscal stimuluses. A key standout here is South Korea where new cases are down to 20-30 per day, recoveries much greater, the economy working decently and general elections also took place with a record turnout where the current government was re-elected. South Korea has also become a big source of testing kits for India. Similarly the Chinese Shanghai Composite is down just 6% YTD now after the virus from that country has impacted the entire world. Tesla had its biggest ever sales in China over the last one month, Apple products are getting sold out of stores etc. Stocks like Amazon and Walmart are trading at new highs even as many other companies have fallen by the wayside. The markets have started distinguishing between winners and losers now
  3. In India the testing has gone up substantially now. Yesterday the number of tests were nearly 33000 which is almost 10% of tests done till now which is 335000. Even with this the no of new cases yesterday were just around 900 with recoveries of 278. India overall seems to be working well
  4. Global Markets rallied over the last two days with the newsflow around Remdesivir the possible Covid treatment drug from Gilead Lifesciences whose stock also rallied substantially. However the actual launch of this drug as a verified treatment could still be a few weeks away. It is also a patented drug and to that extent its availability and pricing could also be an issue. We need to watch this carefully without getting too excited. It’s a positive for sure. The other possible drug Avigan of Fujifilm is also under Phase III trials and might also be a positive if trials are successful. This drug is off patent
  5. In India we are still awaiting the second round of stimulus even after several weeks have passed. It is tough to understand the thinking process of the government. In the USA verified job losses as per Initial Jobless claims have touched 2.2 Crores even without the severe lockdown as in India. I am afraid many businesses will need to permanently shutdown the more the government decides to wait. I am still hopeful we could hear from the Finance Minister on Monday. It is imperative for them to act on real reliefs not only for the poor but affected industries and services at the earliest. The delay is not serving any purpose. As I wrote in my previous blog (where I gave out unemployment benefits of various countries) that without a Social Security regime each days delay is creating more job losses and permanent business closures.
  6. A large number of businesses have been allowed to open up from the 20th of April. However the comeback of production could be slow as getting workers back, making arrangements for them to stay around the businesses and ensuring social distancing is not an easy task. Moreover with most consuming pockets shut down still many companies might not find it viable to restart production to any great extent.

Overall we saw the markets hold up this week with gains of around 1% in the major indices in India. Broadly India underperformed and the rupee also continued to decline mainly due to a lack of confidence in growth revival due to delayed measures by the Government in terms of an Economic Stimulus. The rupee declined by around 1% during the week, as such effectively foreign investors made no money. As things stand today a large part of the initial pull back rally seems to have played out. I would be happy to be surprised positively, however the economic damage is real and without a forceful action by the Government we could see a decent give up of gains. Right now we are just riding on the support of global cues.

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