DAY 2 OF THE LOCKDOWN

DAY 2 OF THE LOCKDOWN

MARKET THOUGHTS

We are now into Day 2 of the lockdown in India. Developments since my last piece yesterday morning has been that on the Coronavirus Crisis things seem to be stable in India with a daily increase in detections of 40-50 new cases. The good thing is that the lockdown in India is much more severe and effective than even the most impacted European countries and hopefully it will help the Virus peak out much faster. Some of the key thoughts and developments right now are

1. The markets staged a good bounce back yesterday despite the announcement of the lockdown. This is what I had mentioned that markets were the most oversold in ever in India and amidst all negatives and no positive announcement on the Fiscal and Monetary front the possibility of additional negative news was low
2. The US Federal Reserve has been continuously increasing its interventions in the markets with more and more market intervention and they have effectively gone to all that it takes mode. The US Stimulus Bill of $ 2 Trillion has not yet been passed but should be passed eventually over today or tomorrow
3. Today is the Futures and Options expiry cycle and most brokerages have dissuaded clients from taking positions in the next month. Infact Options trading is also very less with premiums being very high due to volatility. As such we will enter the next F&O Cycle very light
4. The intensity of selling by FPIs has also started to come down with sale figures now more in the Rs 2000 Cr per day versus Rs 4000-5000 Cr per day till last week
5. There is an expectation that the government will come out with the Fiscal Package over the weekend. I just hope that it is bold and significant as small tweaks here or there will not have much impact, neither will be announcing things which look good on paper but the actual numbers are much lower
6. Job losses have started in a big way in small businesses, small factories, contract workers etc as most of the people are looking at this as a longer term shutdown. This is risky and the government needs to be aware of this as the negativity cycle by itself could create a bigger downside which then becomes difficult to recover fast. Just coming out with orders that salaries should be paid is not going to help. If peoples businesses collapse how will they pay
7. Globally markets have rallied significantly over the last two days. India has underperformed as investors wait for a response from the Monetary authorities and the Government. So is it possible that we can outperform once measures are announced? It is very much possible
8. China, Korea and Japan the first impacted countries are taking the first steps towards recovery and possible restart of various arms of the economy. Lets see how it goes
9. Dr Fauci one of the biggest health experts in the US has actually stated yesterday that warmer weather could actually lead to a lower spread and this could come back as a seasonal flu. This is a good news for India as we enter peak summers soon

Combining all the data that is coming in along with the developments in the Global Markets as well as a clear peaking of the CBOE VIX Volatility Index we should ideally have seen the worst in the Global Equity Markets behind us. So does this mean that markets are going to suddenly run away. I don’t think so. After an initial rally from very oversold levels we will see the bottom formation potentially spread out over a few days. Will write again tomorrow. I am not writing long pieces as I propose to keep it as a daily blog.