stockaxis Market Intelligence (Commentary for March 2020; Outlook for April 2020)

We are pleased to present to you our monthly market commentary and outlook for the forthcoming month. The ‘stockaxis’ Market Intelligence’is a quick update on the markets for the month gone by and our view for the next month. Use our sharp and crisp synopsis to continue building your wealth!

Global Trends

• US President Donald Trump signed a $2 trillion economic stimulus package to cushion the US economy from the Covid-19 impact.
• Australia pledged to spend $80 billion to safeguard jobs in the country.
• China injected $7 billion into its financial system.
• Oil prices fell to a 17-year low due to falling demand as a result of Covid-19 lockdowns leaving large oil surpluses.

Domestic Trends

• To encourage banks to lend, RBI has injected funds to the extent of about 3.2% of the GDP since February.
• RBI has lifted the requirement of banks to set aside cash reserves for loans given to small enterprises and for auto and home loans.
• To discourage banks from parking cash with RBI, the latter cut rates by 90 basis points.
• RBI has permitted borrowers to defer their term loan repayments by three months.
• Interest payments on working capital also deferred by three months without considering the loans to be in default.
• Companies given an additional 45 days to declare their quarterly and annual results.
• To reduce market volatility, trading margin in stocks have been increased and market-wide position reduced.
• Interest rates on all small savings schemes (PPF, NSC, KVP, etc.) reduced.

Market Trends

• FIIs recorded a net outflow of Rs. 65,816.70 crore in March 2020 against a net outflow of Rs. 12,684.30 crore in February 2020.
• The Nifty closed at8,597.75 on 31st March 2020 against 11,201.75 on 29th February 2020, having fallenby 2,604points over the previous month.
• The Nifty 50 P/E ratio was at19.38 at end-March 2020 against 25.49 at end-February 2020. The average P/E ratio for the past 12 months is27.34.

Highlights

• The Good: Low oil prices, efforts to contain Covid-19
• The Bad: Corona virus impact on world economies

stockaxis’ Outlook for April 2020

Covid-19 impact: India vs Rest of the World

The Corona Virus (Cov-19) has brought the world to a near-standstill. Manufacturing and services have been severely impacted across the globe. Plants have been shut down and services have been brought to a near halt with only essential services functioning. Let’s review how India compares with the rest of the world in terms of GDP growth, which is an indicator of economic growth.

Eurozone, US and Asia-Pacific

China, the country from which the Covid-19 emanated, is currently struggling with reviving its economy and external trade. The above-stated three blocks have strong trade ties with China in respect of both imports and exports, and, in turn, have been impacted with the near de-growth that China is facing. Standard & Poor’s, a global rating agency, has confirmed that a recession across Asia-Pacific is a certainty due to disruptions in China. The Economist Intelligence Unit (EIU) has predicted the eurozone to be hardest hit posting a full-year recession of 5.9%.

India

India is currently going through a 21-day lockdown to contain the spread of Covid-19, which is expected to end mid-April. To cushion the economy from the shut down of manufacturing and services (except essentials), the finance minister, Nirmal Sitharaman announced Rs.1.7 lakh crore package. At the same time, RBI announced a number of measures to improve liquidity in the system to help banks revive lending.

While it’s true that the impact of Covid-19 will reduce India’s GDP growth, the country is in an advantageous position compared to the rest of the world, which is in a recession. Moody’s has reduced India’s GDP growth rate for calendar year 2020 from 5% to 2.5%. While the year 2020 is expected to be a lost year due to Covid-19, Crisil and Standard & Poor’s have predicted India’s GDP growth rate at 5.2% for financial year 2021.

A more positive prediction has been made by the EIU, which stated that India will be the fastest growing economy among the G20 counties. In fact, it has predicted that India will be one among the only three countries (China and Indonesia being the other two) to escape recession. The EIU expects India to be far ahead of China, whose GDP growth rate is expected to contract from 6.1% in 2019 to just 1% in 2020.

A point to note in India’s case is that the Covid-19 effect will not be similar across all industry groups. While sectors such as auto, hospitality, airlines, consumer (discretionary), etc. are expected to see a significant downward valuation, essentials such as consumer staples (essentials), pharma, etc. will fall the least.

We, at stockaxis, are constantly on the lookout for great businesses run by honest promoters that are available at the right price with sufficient margin of safety. Our stringent stock selection guidelines and clearly stipulated entry and exit points make equity investing a ‘rich’ experience for our investors!

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