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20 Aug 2020 by Jigna Shah
Negatives And Positives Related To Investing In Equities - Research & Ranking

There is news all over...

Be it any portal, channel or publisher; the internet is flooded with information. Information on daily cases of Covid-19 in India, news on the stock market and the Indian economy.

The point I am trying to imply over here is that - 'News' and 'views' flow in from all the directions - north, south, east and west. The more interesting part is, it changes with the situation. More often than not, information overload leads to decision paralysis instead of enabling smart decisions.

As Theodore Levitt, a famous American economist, rightly quoted, 'Anything in excess is a poison.'

So how should you interpret news? If I have to simplify this basis my investing experience, I would say - Look at the bigger picture. Over here, the bigger picture is the growth trajectory of the Indian economy.

In this story, I'll take you through the shape of the Indian economy, stock markets and Covid-19 situation with the help of these 5 interesting facts.

Fact Check #1

What we are hearing: Markets are really volatile. It's better to sit on cash rather than to invest in equities

What the numbers are telling: Post the kneejerk reaction, in March 2020, where volatility was at its peak at 82, India VIX settled to 21-22 in just approx. 4 months. Volatility is a relevant term to consider while determining an investment risk. Many macro (oil price, exchange rates, etc.) and micro indicators (deficit, inflation, etc.) affect the volatility of the stock market. In India, we generally refer to the India VIX index to gauge the volatility in the stock market.

Fact Check #2

What we are hearing: It's better to invest in gold and other traditional asset classes at this point of time.

What the numbers are telling: As per the data released by Economic Times, the reality is something different. The study says that about 12 lakh new investors opened demat accounts with the Central Depository Services (CSDL) in March and April alone. The reasons for this spurt can be attributed to ease of digital account opening and attractive valuations post market crash. While the number of new demat accounts recorded a strong growth, the SIPs in mutual funds increased marginally. This indicates that retail investors prefer direct equities as compared to managed funds while investing in equity markets.

With the increase in the number of demat accounts, there has also been an increase in retail participation. Even during the difficult situation like pandemic, the retail investors pumped in more money in the stock market. As per CNBC report, the retail participation in the cash market stood at Rs. 18,936 crores during Q1FY20. Now, this number has surged to Rs. 33,731 crores in Q1FY21, a jump of over 78% since Q1FY20.

Fact Check #3

What we are hearing: It's risky to invest in equities.

What the numbers are telling: Yes, it is risky to invest in equities, but only if you don't invest in fundamentally strong stocks. If you look at the Nifty 500 index, 114 stocks have generated returns from 10% to 150% from YTD, while Nifty 500 is down by 7.8% since 1st Jan 2020. This clearly shows that quality businesses, even if they correct, they are the first ones to rebound and deliver impressive returns for their investors.

Fact Check #4

What we are hearing: There is a slowdown in the growth of the Indian economy

What the numbers are telling: As per the report by Motilal Oswal, despite a fall in the GDP growth rate, the debt-to-GDP ratio fell to 80.6% in FY20 from 83.1% in FY19. This is again a positive sign as many companies that have deleveraged themselves, will again borrow more, spur credit growth and revive economy in the long run.

Not just this, while many were expecting revival in GST by Oct-Dec 2020, the recovery came much earlier than expected. July GST collections was at Rs. 87,422 crore, June GST was at Rs. 90,917 cr vs avg. of Rs. 100,000 cr per month pre-Covid. This reflects revival in GST collections as compared to Rs. 32,294 cr in Apr and Rs. 62,009 cr in May. Also, India's manufacturing PMI is up from 27.4 in April to 47.2 in June and 46 in July, growth of 68% in just 3 months.

In fact, the Indian economy has only become more resilient with time.

Fact Check #5

What we are hearing: India has crossed another dreadful milestone with over 50,000 deaths. The situation of the virus in India is worsening day by day.

What the numbers are telling: Looking at the absolute number of deaths is not a correct way. One needs to look at recovery rate, fatality rate, the patterns of cases and much more while understanding the gravity of the situation.

Coming to the deaths, if you look closely, India took over 6 times the number of days it took the U.S. to reach 50,000 deaths. While India took approx. 155 days; Mexico took 140 days, Brazil took 95 days and the U.S took 23 days.

Also, India's recovery rate stands at 72-73% as on 16th Aug 2020 and fatality rate at approx. 2%, which is amongst the lowest fatality rate globally.

This improvement in numbers can be attributed to aggressive testing, robust tracking mechanism and better treatment facilities have contributed to this recovery.


The Bottomline

The above-mentioned scenarios are just an illustration to demonstrate how news can deflect you while making investment decisions. Here is what our research team recommend while investing in the stock market:

Best Practice #1. Considering the hiccup in momentum, this makes many investors think about the next steps ahead. Our advice would be, take every correction as an opportunity to buy good stocks in a staggered approach. Long term value of a business cannot go down 40-50% because of pandemic/lockdown. Discover more on the subject of value investing here.

Best Practice #2. While everyone is grappling with the contradicting news and numbers, look at the bigger picture. In the long-term, stock markets are the best barometer of the health of the Indian economy. Any news you hearing today (GDP estimate FY21 will be down xx%) is already discounted.

Best Practice #3. Fear is more contagious than virus itself, you can learn to live with Covid-19 not with fear. The focus should be on accumulating good stocks with a long-term perspective.

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