What to do with your money amid coronavirus crisis and market uncertainty
The coronavirus pandemic and the resultant lockdown has hit the Indian economy hard. As a result, the markets have been nervous and volatile. The story is not much different around the world, but the novel coronavirus or COVID-19 has proved to be a double whammy for India as its economy was already struggling and going through its worst slowdown in a decade. A range of issues including tepid corporate earnings and liquidity crisis already had the Indian markets feeling the heat in the last two years, and coronavirus has only made things worse.
According to the Asian Development Bank (ADB), India’s economic growth rate will slip to 4 percent in the current fiscal on account of the global health emergency created by the coronavirus pandemic. That is still a more optimistic estimate compared to most other predictions, which range from rating agency S&P’s 3.5 percent to ICRA Research’s 2 percent growth forecast.
India’s economic growth for 2019-20 has been estimated at 5 percent by the National Statistics Office (NSO).
India’s stock market capped its worst quarter on record at the end of March, with the Sensex index sliding 29 percent, according to Bloomberg.
But crises can also create opportunities. Former US President John F Kennedy had apparently once said, “In a crisis, be aware of the danger, but recognise the opportunity.”
YourStory spoke to market experts to understand the opportunities right now, and how people should play the markets. Here is what they said.
Prasanna Pathak, Fund Manager, Taurus Mutual Fund
My advice to the clients is that do not expect a V-shaped recovery immediately. The markets/asset classes will consolidate for five to six months. There will be volatility, and the economy will take longer to recover. However, since equity markets tend to discount the next two years’ earnings, recovery in the markets may be quicker.
It is difficult to find a bottom and hence invest systematically. Use the next three to six months to invest in good stocks, mutual fund schemes, etc. Gold/silver looks interesting as an asset class in the short to medium term.
Also, pharma, diagnostic, and FMCG (fast moving consumer goods) companies catering to basic/essential needs of consumers can be looked at for short to medium term horizon.
A patient investor with a two to three-year time horizon is bound to generate handsome returns by investing in equities in these times of uncertainty and fear.
Once the COVID-19 issue settles, the economy will take another year or so to recover. We are tending to be more positive for the medium-term prospects for India due to the following reasons.
1) Sustained lower crude prices
2) Cheap global capital (negative interest rates in most economies)
3) Lower domestic interest rates
4) Possibility of emergence of India as an alternative to China once the coronavirus issue settles
5) Unlimited Quantitative Easing (QE) by the US Federal Reserve and other central bankers, which will again restore global liquidity, and part of it will flow to emerging markets again.
Prabhakar AK, Head of Research, IDBI Capital
Normally, bear markets don’t end in three months. We can have rallies driven by liquidity, but when the (quarterly) results come along with management commentary, that would give the reality check. One can invest in pharma, life insurance, and the chemical sectors selectively for the long-term while FMCG has not fallen much in this leg of correction, so would avoid fresh investment.
Few chemical companies have been allowed to partially operate as per their exchange filings such as Gujarat Alkalies and Chemicals, Sudarshan Chemical, and Deepak Nitrite, to name a few.
The life insurance sector is not impacted by the lockdown, and the number of policies are likely to surge.
Pharma would be the major beneficiary of the pandemic, and a few preferred picks include Ipca Laboratories, Cipla, Biocon, and Divi’s Laboratories.
I expect the market to correct after four to five weeks, so other sectors we can buy at lower prices. I would hold 30 percent minimum cash to get better entry.
Sumeet Bagadia, Executive Director, Choice Broking
Amid the coronavirus pandemic, stock market and commodity prices continue to remain volatile with some recoveries in the past few days. Looking ahead, we are expecting the stock market to show further recoveries with the hope of flattening COVID-19 cases worldwide, which could bring some cheer in the global markets.
At this point of time, fresh investments should be made with extreme precautions with major investment opportunities in pharmaceutical sector stocks and gold buying in the commodity sector.
Pharma, telecom, cement, and banking are the sectors to invest in.
Sanjiv Bhasin, Director, IIFL Securities
The storm we are witnessing comes once in 100 years. Historic evidence shows that whenever you buy these opportunities amid fear, huge returns are generated over time. However, the classic principle of greed and fear is evident. Now, its survival or wealth with cash levels at unprecedented highs.
Globally, the eye of the storm saw huge redemption pressure from Exchange Traded Fund (ETF) flows as oil collapsed and energy exporters came under huge pressure. Even now, Norges Bank in Norway, one of the biggest sovereign investors in bonds and equity, is redeeming cash.
Retail investors need to up their Systematic Investment Plan (SIP) quantity as this is a once in a lifetime opportunity, and may not last long. With most of the pain over sooner rather than later, the search for a vaccine and abatement of virus will see money printed by most central banks remain in the system, which could trigger a huge bull market in 2021.
So, buy this fear as it could well be the fastest, deepest, and yet shortest bear market.
The sectors to look at investing in are consumer staples, cement, metals, and PSU value picks.
As far as specific stocks are concerned, the picks are Ipca Laboratories, Sun Pharma, Lupin, Dr Lal PathLabs, Godrej Consumer, Havells, Ambuja Cement ACC, Ultratech Cement, Shree Cement, SAIL, JSW Steel, GAIL, Hindustan Petroleum, and Bank of Baroda.
Chokkalingam G, Founder and CIO, Equinomics Research & Advisory
The United Nations (UN) says 40 crore people working in the informal economy in India are at the risk of falling deeper into poverty due to the coronavirus crisis. Global institutions’ growth forecast for India varies from 2 percent plus to 1.9 percent contraction this year.
Still the domestic equity market has, after crashing 38 percent from its 52-week high, gained 20 percent since March 23.
Some market participants believe that the recent correction in the market is a good opportunity to make long-term investments like the post-Lehman crisis during 2008-2009. However, we remain fearful on the market for the following reasons:
1) Post-Lehman crisis, almost all service and production activities were up and running, but now around 80 percent of the economic activities has come to a grinding halt. We believe that the lockdowns and / or disruptions in the major states or pockets of economies are inevitable for another one or two months.
2) Unless a vaccine or effective result-oriented drug is found, normal activities of many businesses like hotels, restaurants, airlines, hospitals (due to engagement in COVID-19 infected patients), automobile sales (largely people would be keen to ensure life first before replacing existing old or buying new vehicles for the first time), cinemas, casinos, gyms/ spas, real estate (due to wealth erosion and income loss), consumer durables (reluctance to allow outsiders to enter the house to fit the durables while virus spread still on), etc., would be badly impacted.
3) It might take several months for the migrants to go back to their previous working places, the same would apply a lot of cost pressures for many manufacturers.
4) It might take another three to four months for the exports to pick up across the world.
5) Some players in few sectors (like textiles, infrastructure, non-banking finance companies or NBFCs, microfinance companies, etc., which were stressed already before the COVID-19 spread) and also some companies which had very high leverage and pledging of promoters’ shares would lead to some significant acceleration in the Non-Performing Assets (NPAs) of the banking system.
6) Most real estate companies had inventory levels from 200 percent to as high as 800 percent of annualised sales as on September 30, 2019. These companies would be affected quite badly in the short-term due to current disruptions.
7) Many state governments draw significant revenues from the sale of liquor and fuel. Prolonged lock-downs / disruptions would complicate their fiscal conditions.
Hence, we are fearful of the short-term outlook for the domestic markets due to the gloomy outlook of the global economy, and a significant fall can be anticipated in the growth rate of the domestic economy.
Some believe that around 26 percent fall in the Sensex from its recent peak of 41,900 discounts fully the short-term pain anticipated. Of course, this argument would be valid in our view if India, within a few weeks, successfully controls the significant growth of COVD-19 infections, and at least 3/4th of economic activities in India and also in other major economies come back to normal within a month.
We fear that this crisis may go on for two to four months across the world. However, we are not sure about the duration of the crisis caused by the virus. Hence, our strategy is to bank on business activities, which would be in good demand during the crisis time.
TV Media, mobile telecom, necessities like sugar and other food products, pharmaceuticals, etc. are the preferred areas of investments in the short-term.
Also, stocks with good long-term potential, which also provide cushion in the short-term in terms of very high dividend yields are also in the preferred investment segment.
However, we fear there is a possibility of the short-term economic crisis slipping into a global recession for a year or so.
Hence, we will remain alert and would not hesitate to book even meagre short-term profits or take quick aggressive cash calls if the current economic environment worsens.
Edited by Megha Reddy