At current levels, it is time to be overweight on equities.
India continues to
witness a perfect storm. A once in century medical crisis has disrupted
economic activities, which in turn, is reflected in financial
market stress. Sectors catering to necessity are doing better than those
catering to luxury. On the other hand, hospitality, entertainment and aviation
have been hit badly. Major sectors such as auto, real estate, BFSI are also
feeling the stress. Sectors like FMCG, Telecom, agri industries are less
affected.
Financial year
2020-21 (FY21) will witness negative gross domestic product (GDP) growth for
the first time after 1980. In April, steel production was down 87 per cent
year-on-year (YoY) and power generation was down 22 per cent YoY. Overall
business outlook, as measured by the PMI Index, was down to lifetime low. The
risk of the second wave continues to exist as we do a calibrated opening of the
economy.
Other countries
are also in the same boat. As per IMF, the US is likely to see -5.9 per cent
while the EU is likely to see 7.5 per cent contraction in GDP despite high
fiscal and monetary stimulus.
However, there is
a silver lining. Fertiliser sales nearly doubled in May over last year. It’s a
sign of a boom in the agri sector. Britannia posted over 20 per cent revenue
growth in April and May. Power demand has begun to inch up again – a sign of
economic activity recovering from bottom. ‘Fastag’ & E-way bill generation
of May also show some recovery from bottom.
There is also
demand for good quality Indian papers, as reflected in successful offerings by
Reliance Industries (RIL), Hindustan Unilever (HUL) / HDFC Life / Bharti Airtel
and Kotak
Mahindra Bank. MSCI & FTSE has proposed to increase India's weight in
emerging market (EM) indices over next quarter. This can bring anywhere between
$3-7 billion foreign portfolio investor (FPI) flows in Indian equities.
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