Inappropriate to say that markets have bottomed; invest in a staggered way

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.

Covid-19 fallout: Airbus, Boeing results show turbulent times for aviation

Given the nationwide lockdown and weak travel sentiment, global aviation consultancy CAPA revised downwards estimates for India's air traffic for the for FY21 from 80 to 90 million to 55-70 million

The skies are far from clear for the Indian aviation sector as the Covid-19 pandemic continues to withhold airlines such as IndiGo and SpiceJet from flying. A recent government suggestion to begin operation between green zones has been shot down by the airlines, calling it commercially unviable. Amid this, US-based aircraft manufacturer Boeing has now said that air travel could take at least 3 years to recover to 2019 levels.

“Fundamental growth drivers remain intact but it will take 2-3 years for air travel to return to 2019 levels and a few more years to return to long-term growth trends,” Dave Calhoun, chief executive officer of Boeing recently said.

According to rating agency Crisil, the aviation industry will crash-land this fiscal with a revenue loss of Rs 24,000–25,000 crore with airlines contributing more than 70 per cent of the losses, or nearly Rs 17,000 crore.

“What’s worse, the losses will climb if travel restrictions last longer in hubs such as Mumbai, Delhi, Chennai and Kolkata. We expect the aviation sector will take at least 6-8 quarters to reach pre-pandemic levels,” it said in a recent report.

Given the nationwide lockdown – in place at least till May 17 -- and weak travel sentiment, global aviation consultancy CAPA, too, recently revised downwards estimates for India’s air traffic for the current financial year from 80 to 90 million domestic passengers to just 55-70 million, while international traffic could decline from 35-40 million to 20-27 million.

Crisil expects the Covid-19-led slowdown to reverse the growth trend of 11 per cent annum the industry has logged over the past ten years. Domestic air travel in the month of March declined 33 per cent month-on-month (MoM) to 7.76 million passengers from 11.59 million passengers in February, 2020, data provided by Directorate General for Civil Aviation (DGCA) shows.

Will the RBI cut interest rates today? Here's what top brokerages expect

While the Monetary Policy Committee (MPC) of the RBI originally was slated to meet in the first week of April, the central bank in a surprise move is holding a briefing today.

The government provided Rs 1.7 trillion package aimed at providing relief to the poor and marginalized sections of society. Most experts have termed it as the first tranche of the relief measures from the authorities and expect the Reserve Bank of India (RBI) to follow it up with a cut in interest rates besides announcing other liquidity support measures.

While the Monetary Policy Committee (MPC) of the RBI originally was slated to meet in the first week of April, the central bank in a surprise move is holding a briefing today. Here is what leading brokerages expect from the central bank.

Brickwork Ratings

In keeping with the promise of the RBI Governor that the RBI will do whatever it takes, it is reasonable to expect a sharp reduction in the borrowing costs. We expect the RBI to continue with its liquidity infusing tools such as open market operations (OMOs), forex swaps and long-term refinance options (LTROs), but also to announce measures to support corporates suffering from business losses due to the pandemic outbreak.

As the ongoing slowdown will drastically impact the financial health of many sectors, we expect the RBI to introduce forbearance measures towards the most affected or stressed sectors, and extend the repayment schedule and moratorium, along with implementing other measures, to avoid large NPAs and reduce risk weights. We expect the RBI to continue with accommodative monetary policy actions and stance; and cut the repo rate by 50 basis points.

Nomura

We believe the RBI is running the risk of falling behind in terms of proactive policy intervention, especially with the magnitude of shocks currently hitting the Indian economy and the financial system. So far, the measures have been on increasing domestic and dollar liquidity to ease financial conditions.

Coronavirus pandemic burns Rs 1.9 trillion hole in LIC's investments

The value of insurer's holdings in listed companies at the end of December 2019 quarter stood at Rs 6.02 trillion.

A 30 per cent drop in the S&P BSE Sensex and the Nifty 50 thus far in the calendar year 2020 (CY20) has weighed heavily on the fortunes of state-owned life insurer, Life Insurance Corporation of India (LIC), which has suffered a notional loss of about Rs 1.9 trillion in the past two-and-half months. The insurer, known for making large equity investments, has substantial holdings in many listed companies. The dent comes at a time when the government is drawing up plans of listing LIC at the bourses, subject to legislative changes and regulatory approvals.

The value of insurer’s holdings in listed companies at the end of December 2019 quarter stood at Rs 6.02 trillion, which is valued at Rs 4.14 trillion now, translating into a mark-to-market hit of Rs 1.88 trillion, or 31 per cent. The study is based on 209 companies from the S&P BSE 500 index where LIC held over 1 percentage point stake in the December 2019 quarter. These companies accounted 65 per cent of total market capitalisation of BSE-listed companies.

Among sectors, financials including banks, non-banking financial companies (NBFCs) and insurance companies, the top value destroyers, accounted 30 per cent or Rs 56,810 crore of total LIC value erosion during the period. Oil & Gas (Rs 36,020 crore), cigarettes makers (Rs 17,374 crore), information technology (Rs 15,826 crore), metals (Rs 12,045 crore), automobiles (Rs 11,329 crore) and infrastructure (Rs 10,669 crore) are other sectors, in which LIC lost a more than Rs 10,000 crore values during the period.

“Services-related sectors will be the worst hit due to Covid-19. Agri will largely remain unaffected, while manufacturing will be hit to the extent that there will be a supply-side issue. Within the services, too, there are sub-divisions for the impact. While telecom may largely remain unaffected, hotels, travel & tourism will bear the brunt. All this will continue to impact investors’ fortunes, including LIC. This is a systemic issue,” explains G Chokkalingam, founder and managing director at Equinomics Research.

Over the next few months – at least till there is clarity on the impact of Covid-19 on the economy and the fortunes of India Inc – analysts at Credit Suisse Wealth Management expect fund flows into equities – both domestic and foreign – to taper off, which again will put the Indian markets under pressure.

Good time to start SIP in this market mayhem

The entire panic has been initiated by fears that the system to curtail the Coronavirus (COVID-19), across the globe, is misplaced.

The way markets crashed on Friday, with the Nifty hitting the 10 per cent lower circuit is a global market -led panic.

The rout was triggered by the sell-off in the global markets, initiated by a 10 per cent crash in Dow Jones Industrial Average, followed by the Korean markets freezing in the lower circuit.

The entire panic has been initiated by fears that the system to curtail the Coronavirus (COVID-19), across the globe, is misplaced.

Truth be told, we don’t know when will this chaos will ease. Over 100,000 people across the globe have been infected by the virus and nearly 5,000 have died. India, too, is seeing a consistent rise in the number of cases.

However, this doesn’t mean that we can’t control the outbreak. We need to put in stringent restrictions, possibly a lockdown, to curtail the spread.

However, investors must realise that this is a very short-term phase, and normalcy should come back to markets soon.

Right now, investors should be inactive and should avoid any sort of buying or selling. For long-term investing, it is a precise time to wait and watch and start accumulating quality stocks via the systematic investment plan (SIP) route.

Why the Sensex has rallied 600 pts today and will the up move sustain?

Last week, Indian bourses saw their worst weekly fall in a decade with the S&P BSE Sensex and the Nifty50 tumbling nearly 7 per cent each during this period.

A drop of nearly 3 per cent on Friday amid a global sell-off on coronavirus health scare and fears that weak economic data from China over the weekend ticked most of the checkboxes that could have sent the markets spiraling down further as they opened for trade on Monday. However, the over 600-point up move intra-day caught many by surprise.

The markets, analysts say, over-reacted to the developments and sold-off in a panic mode on Friday. The rally on Monday, according to them, could also be on account of short-covering. Most global markets suffered their worst weekly fall since the 2008 global financial crisis last week. The velocity of the fall in stocks was sharp across markets in Asia, Europe, and America. Indian bourses, too, saw their worst weekly fall in a decade with the S&P BSE Sensex and the Nifty50 tumbling nearly 7 per cent each during this period.

“The markets now seem to have realised that coronavirus may not be as bad a scare as it was made out to be. The only way it can spread is via physical contact amid conducive temperature / climate. India, though not completely insulated from the global meltdown in financial markets, is still relatively safer as regards this health scare. I don’t see the markets selling-off in a way they did on Friday. There can be intermittent corrections but quality stocks will start to perform now,” says A K Prabhakar, head of research at IDBI Capital.

Another reason is the hope of a fiscal stimulus by global central banks to prop-up growth, which was already hit by US China trade spat, till the onset of coronavirus made things worse. The developments, according to experts, are enough reasons for central banks to cut rates and inject liquidity into the system to aid growth. This, in turn, will benefit most asset classes.

“The fundamentals of the US economy remain strong. However, the coronavirus poses evolving risks to economic activity. The Federal Reserve is closely monitoring developments and their implications for the economic outlook. We will use our tools and act as appropriate to support the economy,” Fed Chairman Jerome Powell said over the weekend.

Coronavirus impact: Experts see weakest quarter for global growth since GFC

The main channel of economic disruption at this stage, according to UBS, is largely via reduced tourism flows (in/out of China), and reduced import demand from China.

With coronavirus getting a tighter grip on the China and impacting world trade, most analysts have started lowering global growth forecasts as measured by the gross domestic product (GDP) for the first quarter of calendar year 2020 (Q1-2020). Those at UBS, for instance, expect this would be the weakest quarter for global growth since the global financial crisis (GFC) and on par with the Asian crisis in the late 1990s.

Global GDP, according to Arend Kapteyn, global head of economic research at UBS, will take a serious knock and slip to 0.7 per cent in the January 2020 quarter (Q1-2020) from 3.2 per cent in the December 2019 quarter (Q4-2019). Though he expects growth to rebound in the April – June 2020 quarter, the impact could slow the overall 2020 GDP growth by 20 basis points (bps) to 2.9 per cent.

The main channel of economic disruption at this stage, according to UBS, is largely via reduced tourism flows (in/out of China), reduced import demand from China — particularly of consumption goods — and restrictions imposed by third countries to avoid the virus spreading.

“We expect import growth in China to fall from 3.2 per cent in Q4 to a negative 4 per cent in Q1. The rebound we hope for in Q2 largely reflects delayed consumption effects in China, while the improvement in Q3 reflects the lagged impact of stimulus coming on line, particularly in China,” the UBS report says.

With the number of suspected/confirmed cases rising at an alarming rate, close to 99 per cent of those are in China, reports suggest. The economic impact, experts say, will also be magnified this time around compared to the SARS outbreak as Asia's weight in the global economy has risen from 21 per cent in 2003 to 37 per cent now.

Market News

Private Banks, Reliance Industries, Infosys take Sensex to new high

The Nifty50, too, breached the 11,700 level for the first time since September 2018 to hit an intra-day high of 11,716.

A sharp rally in three private sector banks – HDFC Bank, ICICI Bank and Axis Bank – that have gained over 10 per cent each from their August 29, 2018 level helped the benchmark index S&P BSE Sensex breeze past the 39,000 mark and hit a new high on Monday. The benchmark index surpassed its previous high of 38,990 recorded on August 29, 2018 in intra-day deals.

The Nifty50, too, breached the 11,700 level for the first time since September 2018 to hit an intra-day high of 11,716.

Besides these three private sector banks, Reliance Industries (RIL), Infosys, Bajaj Auto, Asian Paints, HCL Technologies, Larsen & Toubro (L&T) and State Bank of India (SBI) have gained in the range of 4 to 9 per cent from their August 2018 levels and helped the 30-share index record a new high on Monday.

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“There is more steam left and I feel the S&P BSE Sensex can hit 40,000 levels before the election results are known in May. The optimism stems from the strong foreign flows that we are getting. India now seems to be an attractive investment destination for foreigners amid slowing global growth,” says G Chokkalingam, founder and managing director, Equinomics Research.

Among sectors, most analysts remain bullish on the banking space despite the recent run-up and suggest investors stay put with large private sector banks and good quality public sector plays.

A pick up in industrial activity that will spur corporate loans, aggressive recognition of bad assets and improving recovery that will help boost asset quality, softening credit costs that is likely to propel return ratios and burgeoning share of retail term deposits which is likely to provide long-term stability to the source of funds are the factors working in favour of private sector banks, say analysts at Edelweiss Research. Axis Bank and ICICI Bank are their preferred picks in this segment.

Meanwhile, 17 out of 31 stocks that comprise the S&P BSE Sensex are still trading below their August 29, 2018 levels, shows data. Tata Motors, Tata Motors DVRs, Mahindra & Mahindra and Maruti Suzuki India have lost over 25 per each on the BSE during this period.

Autos, analysts say, are under pressure with respect to their monthly sales numbers. At the same time, the inventory levels are also on the higher side, which they feel, will take some time to get cleared. However, with improving liquidity and decreasing rates, there could be support coming over the next few months.