2020 - The Next Half - Can this be a Better Half?
What to expect in the second half after experiencing a roller coaster ride in the first half?
It was a roller coaster ride for the investors in the first half of 2020. We saw Sensex and Nifty touching an all-time high and then steep fall, followed by an equally sharp rise. In this volatility, Sensex and Nifty lost almost 15 percent. Mid and small caps did better as compared to large caps, but they too are in red. Overall more stocks declined as compared to advanced. In Nifty and Sensex, almost 80 percent of stocks are at a lower level since the year began. In BSE 500, the ratio is relatively better, with 75 percent stocks quoting below YTD. But the real surprise is that not a single stock from Nifty Bank or Nifty Finance is in the green in YTD. These were sectors to go after. The sectors that gained fancy are Pharma and Telecom. Overall, India Inc lost Rs 16 lac crore of market cap in the first half.
How will the market behave in the second half?
The recent stock market rally made two camps- one feels that recovery in the economy will be V shaped, and hence the stock market should do well. Other camp feels that it will take some time for the economy to show strengths. Hence this camp is expecting subdued performance in the market in the second half.
Global data points do suggest strong recovery
When we scan global points that do suggest that economic activity is picking up post lockdown. In the US, car sales have reached 70 percent of the pre-COVID level by May. France is experiencing a rebound in consumer spending. In the UK uptick was seen in restaurant and hotel bookings. In many cities, traffic has increased and very close to pre-COVID time. Even China’s PMI for manufacturing for June has shown improvement to 50.9 as compared to 50.6 of May. In India, Kharif sowing has started on a positive note. Rural demand is strong due to the government stimulus package. These data points do indicate that economic activities are improving much better than what was earlier expected. Even if there is a second wave of infection, many believe that lockdown henceforth will be more local and area-specific. Hence rally should expand.
IMF is not optimistic
On the other hand, IMF recently revised its economic outlook for the world economy, suggesting that the world economy will suffer more due to Covid-19. Last week it revised downward world GDP growth rate to 4.9 percent compared to April contraction prediction of 3 percent. It expects the recovery to be more gradual. IMF revised downward India GDP, too, with GDP to shrink by 4.5 percent. Sanjiv Mehta of HUL, while addressing shareholders at the company’s AGM, stated, “The risk of recession remains real, but we mustn’t take it as a foregone conclusion.” He further added that the government should keep a close watch on the demand situation and step in if it doesn’t revive in the next few months. But Mehta is not alone in expressing fear of slowdown. Many companies in their post result conference have indicated that the demand outlook is uncertain. They expect pre-COVID demand, not before the last quarter of FY21.
Expect volatility as sharp as the first half
So how do we see the second half? We sense that we will see volatility as sharp as what we experienced in the first half. Today Risk-on strategy is in vogue, which is ignoring negative news. But market sentiments are fickle.
Only one week of lockdown is reflecting in March quarter numbers, and India Inc saw a big impact on the bottom line. The impact will be more pronounced in the first half of FY21. Many states, including Maharashtra, have extended lockdown till July end, and hence we are far from going back to the pre-COVID business scenario in the near future.
Every rise in the market makes Indian market valuation expensive as P is rising, but E will fall. The market can’t ignore this for too long. Hence investors should have a stock-specific approach. Chasing momentum stocks has its own peril, and hence don’t try to make portfolio from momentum stocks. If you wish to create a long term wealth, park your funds in the good quality companies. They will emerge much stronger in the post COVID era.
Comments
Post a Comment