With 1.3 billion people locked down, everything is looking doom and gloom – the streets, the play areas, the once traffic-laden areas, and even the stock markets. People are awaiting good news and investors are finding the right floor (or should I say bottom) to enter the stock markets in India.
Indian stock markets have seen a significant correction, and are down by 30-32% since 2020 high.
Fear, negativity and anxiety have taken a huge psychological toll on the people.
But I’m sure; we’ll get through this.
Here are six signs that tell that India will recover from this unprecedented threat to the economy in the near future.
Sign #1. Opportunities galore
With the disruption in the global supply chain due to the challenges in China, has highlighted the disadvantages of being over-reliant on one economy. Hence, many global companies would consider shifting their manufacturing operations away from China. Considering the skilled workforce that India possesses, the country is most likely to benefit from this.
Sign #2. The count of cases in India
I have quite been hearing that India does not have an adequate number of testing kits. Hence, the reported number is understated as compared to the actual count. But if this was the case, consider state like Maharashtra where the highest cases are reported. If something apocalypse-like situation had to occur, it would have been surfaced by now. If that had been the case, we would see a long queue of patients outside the hospital, but no doctors to attend them. But, that’s not the case. Today is the fourteenth day of the lockdown, and the count is approx. two thousand confirmed cases across India. Till now, we have been able to contain it really well, and hope so it remains the same.
Sign #3. Overlooked positives - Low oil prices and commodities prices
Few good news is overlooked in the rout. Brent crude oil is trading between $25-30 per barrel, the lowest level since 2002. Also, commodity prices are falling.
Now how would this benefit India, and even you!
Benefits to India
- India imports 80-85% of crude oil. If you look, the prices of Brent crude oil have dropped from $61.30 in Dec 2019 to $25-$30 a barrel. This is a massive saving for India, as low prices would mean reduced pressure on fiscal balance.
- Every dollar per barrel drop in Brent crude reduces India’s import bill by $1.5 bn p.a. or Rs. 105-115 bn (at the current exchange rate of 75). Thus, a drop from approx. $60-62 to $27-$30 now will lead to savings of over $30 - $40 bn, or Rs. 2.1 – 2.5 tn. This amounts to 1% to 1.3% of our GDP.
- Along with a reduced foreign currency outflow, lower oil prices reduce inflationary pressure, thus fostering the growth of economic activity.
- Fall in fuel prices means a big thumbs up to boost consumer spending!
Benefits to investors
- This would also benefit industries such as petroleum, shipping, chemicals, paint and FMCG would benefit from the fall in crude oil prices.
- This is a good chance for investors to enter markets for a long-term horizon and accumulate stocks such as Pidilite, Asian Paints, Hindustan Unilever, Indian Oil, etc. that will post shining profits as a result of declining oil prices.
Since India is a major importer of both, India’s macro has high chances to recover as soon as the world comes out of this crisis. Also, the Reserve Bank of India slashed rates by 75 bps in an emergency move last week. These positives are completely ignored by many investors.
Yes, India may take one month, two months or even three months, but we will be able to battle the virus.
Sign #4. Value across many sectors in the stock market in India
Most stocks, including the high-quality/fundamentally strong ones as well, are plummeting. But let's not look at this in isolation. If I ask you about the biggest fall in the recent past, I'm sure you would say the 2008 crisis. During this period, many high-quality stocks also fell as much as 40-90% as well. Remember, the fall is only in the price, and not business value.
As you can see above, with high-quality stocks falling in price (note: not in value), there is a lot of value across the board. Read more about how market corrections serve as an opportunity of a lifetime to create wealth for successful investors here.
Hence, investors are recommended to invest in stocks that can grow as well as provide a cushion. With the RBI governor delivering a positive statement that all private banks and depositors will be safeguarded, we can expect a strong rally across the banking and insurance sector. With this, investors can look at a few select companies on the pharma, IT, auto, manufacturing and consumption side.
Sign #5. Measures by the government and RBI
Many investors think that this is going to be worse than the 2008 financial crisis. However, this time Indian policymakers are much more prepared. RBI has initiated a lot of support measures to improve liquidity in the system.
The actions taken will help inject total liquidity of Rs. 3.74 lakh crore to the system. These steps are positive, which will compel banks to lend more, thus boosting consumption and eventually recovery trajectory of the Indian stock market.
Sign #6. India enjoys a few benefits that are worth remembering!
Be it the revolutionary reforms such as Goods and Services Tax (GST) and Insolvency and Bankruptcy Code (IBC), or the initiatives such as the reduction in corporate rate tax or the inherent advantages such as demographic dividend and warmer climate to recede the spread of the virus with time. In essence, all this should help India to get back on foot again.
The corporate tax rate cut by the government shall amplify the growth of manufacturing industries in India. With the reduction in corporate rate tax, we can expand our exports. Also, we can set up industries here, thus staying true to the government's vision of 'Make in India'.
If you look closely, with the reduction in the corporate tax rate, we should see a revival in earnings, which would also be reflected in the stock prices of high-quality businesses, as companies pass on the benefit of a rate cut to consumers.
Investing In The Stock Market In These Uncertain Times
I‘m sure we are going to witness a lot of volatility, at least for some more time! But, don’t overlook the high-growth stocks that are fundamentally solid, for now, is the most opportune time to accumulate them at attractive valuations before they go up and up again.
And as the country starts getting back to routine and work, we could see high-quality stocks soar up again as pent-up demand is unleashed. With that, the bulls shall come back in the markets, this time stronger and more resilient. Click here to invest in the best investment opportunities currently available in the market.
The current volatile time is a reminder of the true personality of equities – unpredictable, moody, risky and hard to time its ups and downs. It reminds me of a few basic and time-tested techniques:
- Invest money with a long-term horizon. Park money that you don’t need for the next 3-5 years.
- Build a diversified portfolio. Watch out for over-diversification or under-diversification.
- Never borrow and invest. Stay away from futures and options, hedging or speculation.
- Invest in tranches over the next few weeks or months.
And yes, while you are indoors, this is the perfect time to make your money work you, irrespective of a lockdown or no lockdown ?. So make the most out of it.
Till then, stay home. Stay safe.
(Note: The stocks mentioned in the story should not be construed as Research & Ranking’s recommendations).