We are now into Day 6 of the Lockdown and the last two days have been full of lot of information flow related to Covid19. Many governments have continued to announce new fiscal packages aimed at controlling the downside the their economies during the shutdowns which are at different levels in different countries.
- The No of Covid cases grew at around 150 levels on Friday and Saturday in India and around 100 yesterday. We seemed to have avoided the parabolic rise phase at this stage. However it might be too premature to celebrate
- The one country whose data actually encourages me is Italy where No of new cases over the last 6 days have been averaging around 6000 with yesterdays data being 5200. No doubt these are very high Nos, however after 15 days of lockdown (lesser than India’s) No of new infections have stabilized. My view now is that within 7 days we will see No of recoveries per day exceed No of new infections as in China and South Korea.
- Most people are looking at the growth of infections in the USA and getting very worried. However factually the US movement restrictions have been very less and only increased in a graded manner. They still don’t have a lockdown of the kind we have in India even in a city like New York which is the most impacted.
- Post the G20 Conference call we have seen a decline in the US Dollar Index which is also important for global funding stress to reduce. This is also a key monitorable in the near term
- Another data point which is important to monitor is the overall Global new cases which also seem to show some peaking (next week is still important, too early to call)
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- The RBI action on Friday is being underestimated by many. I believe its huge very huge. It reduces costs for banks, creates a significant platform to reduce corporate bond spreads and a big disincentive for banks to keep money with the RBI once the Economy gets back on its feet. This time RBI has acted more than many other Central Banks
- We still need to see more Fiscal Action by the Government. Plus if it is combined with some sentiment improvement steps like scrapping of LTCG (which in any case is yielding anything to them) will be another step towards creating a market bottom which should be the bottom which has already been formed.
- As we have seen with the Migrant crisis over the weekend the impact of complete stoppage of construction, small businesses, restaurants, many delivery services, malls etc is already leading to layoffs. Unless there is a scheme by the government to fund part salaries and wages like in the UK this crisis could become bigger and then also impact recovery once the lockdown ends as many of these people will not come back immediately and there will be a shortage of labour all across
- There is a risk of another round of farm distress when the rural economy was just about to come back. Lot of Milk has started to go waste, vegetable supplies have been impacted as transport logistics were impacted and the harvest season in a couple of weeks could also be impacted. We need to see government action on this front going forward
Overall the huge foreign investor selling in India and other Emerging Markets seems to be ebbing. On Friday we actually saw small net buying. Lower selling, restrictions on leveraged trading as well as stability in the earliest impacted countries like China, South Korea, Japan, Singapore etc will provide something for investors to look forward to. The extreme collapse of crude oil prices is not a positive as it impacts global capital expenditure cycle and can also create huge issues for US Shale Oil companies. However as on today there is huge excess supply and extremely low demand. Overall as things stand today the bottom seems to have been made. We will still monitor Covid progress in India. The next two weeks should ideally be a great opportunity to Buy if things stabilize. Will write more tomorrow.