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19 Oct 2020 by Jigna Shah
Investing in Equity; The Glass Is Not Half Empty Anymore!

If you invested 6-7 months back, you would know that there was a lot of difference between investing then and investing now.

When the markets corrected by 38% in March 2020, the economy and the stock markets looked uncertain and gloomy.

Many investors had these dilemmas in March 2020:

  • When will the businesses go back to routine?
  • What will happen to the stock markets?
  • When this crisis/pandemic will end?
  • Where the Indian economy will go from here?

And so on…

No doubt market corrections always prove to be an excellent opportunity for investors to create wealth; however, many Indian investors failed to see the opportunity. With the ongoing pandemic, tensions on the India-China border and other country-level factors, for many investors, the stock market looked similar to the glass. The only thing is – for most of them it was half empty, whereas, only for a few opportunity seekers, it was half full.

But that was the story in March 2020.

Let’s talk about the situation in Oct 2020 i.e. 6.5 months after the market crash.

If you see now, the markets and the Indian economy are almost back to pre-Covid levels. As compared to March 2020, the Indian stock markets are already up by 55%.

For an investor investing now, the above dilemmas about the future of the Indian economy and the stock market do not hold valid.

Now, why do I say that the crisis is behind us? Let me show you a few facts, which are an important economic indicator.

1.Manufacturing PMI at highest levels since January 2012

Investing in Equity; The Glass Is Not Half Empty Anymore!

As you can see in the table above, IHS Markit India Manufacturing Purchasing Managers Index (PMI) rose to 56.8 in Sept 2020 from 52 in Aug 2020. This is not just the highest reading since pre-Covid levels but the highest reading since Jan 2012. Just to guide you, in the PMI terminology, reading above 50 indicates economic expansion, while a reading below 50 indicates contraction in economic activities.

The expansion in economic activities can be attributed to loosening of lockdown restrictions, the surge in new work and reopening of factories.

2.GST collections almost back to pre-Covid levels

Investing in Equity; The Glass Is Not Half Empty Anymore!

If you see in the table above, gross GST collections for Sept 2020 is almost 4% up y-o-y and 10.5% up m-o-m. Also, if you look at data closely at the data, this is for the first time in six months (April – Sept) that the monthly GST collection this year has been more than the same period last year.

3.India Services PMI at a 7-month high

Investing in Equity; The Glass Is Not Half Empty Anymore!

As per the data, the IHS Markit India Services PMI is high as compared to the corresponding period last year and at a 7-month high, even surpassing the March 2020 levels. For Sept 2020, it inched higher to 49.8 (close to reading of 50 which denotes expansion), thus beating the market expectations of 44.7. The latest reading indicates broadly stable output across the services sector.

4.Petrol Sales back to Jan 2020 levels

Investing in Equity; The Glass Is Not Half Empty Anymore!

Source: Petroleum Planning & Analysis Cell

After the hiccup in April 2020 and May 2020, petrol sales is back to pre-Covid levels and is now 3.2% up y-o-y.

5.Power Demand above pre-Covid levels

Investing in Equity; The Glass Is Not Half Empty Anymore!

Source: Power Ministry

After a steep fall in April 2020, power demand is at its 2020 all-time high, even surpassing the demand in Jan 2020.

6.Railway Freight

Investing in Equity; The Glass Is Not Half Empty Anymore!

Source: Indian Railways

After a drop in railway freight in April 2020 by 35-36%, the railway freight in Sept 2020 recorded an increase of approx. 15.5%. As compared to the high in Jan 2020, railway freight is down by just 7%.

To conclude, we can see a revival in electricity and fuel consumption, pickup in purchasing managers’ indices (PMI) for manufacturing and services, improvement in railway freight traffic and increase in gross GST collection.

Definitely, with activities resuming back to normal, there are green shoots of revival in the economy. But my question to you boils down to – do you still think that the glass is half empty? Are you still waiting for the right time to invest?

Looking at the revival in the Indian economy, on-ground recovery and positive sentiments, the question is no longer about should you invest now or not. The question is about ‘Where to invest?’

To answer – Have an eye for businesses that will not just survive but also flourish with time.

And if you see, the current situation is favorable for both investors and good businesses.

Let’s look at how:

  • Look for established companies run by competent management: During this time, more reliable and more significant businesses will have the opportunity to grow, adapt and innovate to become bigger and better businesses. As we see small players shutting shops, these bigger businesses will capture more market share and eventually, you will see lousy capital getting replaced with good money. This will improve the business environment and efficiency of the system, eventually leading to better opportunities for the investors to park their money. Invest in stable and established companies run by a competent management.
  • Look for companies that can adapt itself with time: Digitization will improve as companies that never or partially adopted digital, will now be forced to embrace digitization. With more and more companies embracing digitization, this will enhance the cost structure of the company and improve scalability. With this, also look for the companies here that can successfully manage costs while displaying consistent growth in their profitability ratios.
  • Look for companies with strong emotional value: With things resuming to normal gradually, many people would consider celebrating the small pleasures of life, achievements and anniversaries. As people celebrate, people will buy more and gift more. Also, brands that have solid emotional value will relatively remain unscathed, and in fact, would only see more sales as people indulge more in revenge shopping.

The Bottom Line to Keep in Mind While Investing in Equity

To summarize, while investing in equity during such times, there are only three things that you need to remember. Maybe you can frame this note and ornament your study desk or working environment. So, yes, here are the three priceless golden rules for SUCCESSFUL INVESTING:

  1. Short-term hiccups don’t change the fundamentals of the businesses. And it is least likely to impact the fundamentals of good businesses negatively. And, we have countless examples – Look at companies such as HUL, TCS, Wipro, Nestle that can survive the current tide.
  2. When investing in equity, uncertainty has always been a part of an investor’s life.
  3. Stick to sectors or businesses that match your philosophy. Stay away from businesses that you don’t understand.

Nobody can go back in time and change the past. But anyone can definitely make a new beginning by taking the right step today towards a bright future. Click here to get started with a winning portfolio of 20-25 multibagger stocks.

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