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Moneycontrol Pro Weekender | Apocalypse now, but jam tomorrow 

Given current uncertainties, investors would do well to pick stocks for the long term available at decent valuations

May 01, 2021 / 10:45 AM IST
Amid the rising COVID-19 cases in India, many countries have imposed travel ban on travelers from India and restricted travel to India as well. (Image: Reuters)

Amid the rising COVID-19 cases in India, many countries have imposed travel ban on travelers from India and restricted travel to India as well. (Image: Reuters)

Dear Reader,

By now, most of us have seen the deadly second wave of the virus afflict our friends and relatives and many have spent nerve-wracking hours trying to arrange hospital beds or oxygen supplies for them. On Thursday, India accounted for more than two-fifths of new cases worldwide and a fifth of the deaths. And these are the official numbers, which few have any faith in. It is a catastrophe.

But there is hope. The world is responding to India’s cry for help. The shortages of medical supplies should be remedied soon. There are signs the second wave is ebbing in Mumbai and it has probably peaked in Maharashtra. The rise in daily new cases has slowed. Epidemiologists are now predicting that India may reach the peak of the second wave either in May or June, going by the experience of other countries.

A word about hope. This is what The Lancet, one of the best medical journals, had to say about it in the context of India’s COVID policy last September: ‘Hope is important, and recognising successes is vital, especially during a pandemic. But presenting the current situation in India with a too positive spin not only clouds reality but also hampers vital public health initiatives. Perpetuating unrealistic claims or failing to honestly report negative news creates uncertainty among the public and health-care professionals, discouraging people from taking preventive action or taking public health messages seriously.’ That warning needs to be taken even more seriously now.

The pace of vaccination continues to be slow. There is considerable uncertainty whether we have enough vaccines to inoculate everybody on a war footing. We took a close look at the new vaccination policy and how India’s policy stacks up compared to other countries. Why is it, for instance, when almost all countries pursue a centralised policy of vaccine procurement, has India thrown it open to the states and the private sector?

Close

After the first wave, the Indian economy came roaring back for a few months, but slowing credit and industrial growth data suggest that some of that could be due to pent-up demand. The equity market has borne up reasonably well, given the severity of the second wave, partly because it thinks it will ebb soon and partly because it has seen how other economies, especially in the US and Europe, have bounced back despite recurring waves of infection. But then these countries have rebounded on the back of massive fiscal and monetary stimulus. For countries like India, which haven’t seen a similar robust stimulus, will the rebound be as strong? Especially if the vaccination roll-out is delayed? The shadow of the second wave has already fallen over our economic recovery tracker. We need an economic plan to counter the impact and to ensure that future waves do not catch us napping.

How then should investors play the second wave? Given the rapid recovery in the developed markets, one way would be to bet on export-oriented sectors—IT, pharma and chemicals. In IT, we recommended HCL Tech as a long-term buy, while Tech Mahindra has both earnings visibility and a valuation discount. Sticking to the export theme, this niche jewellery company with a strong balance sheet could be worth considering.

Given current uncertainties, investors would do well to pick stocks for the long term available at decent valuations. From that point of view, we considered Bajaj Auto, ICICI Bank, ACC, Britannia and Syngene. On the other hand, we advised investors to wait for corrections before investing in TVS Motor, Hindustan Zinc and Titan. As for steel stocks, which have been on fire, we flagged a risk to the outlook.

Other current themes include prudent companies relatively better placed to ride out the second COVID wave, such as Axis Bank; companies with digital initiatives such as Bajaj Finance; and Maruti on the personal mobility motif. For those with a high risk appetite, we recommended ICICI Securities on the bet that the disruption in the industry may not be as bad as feared

Talking of disruption, though, one of the effects of COVID may be a trend towards increasing automation, as machines and robots can’t get infected. That could have long-term implications for employment generation in industry. We took a look at another disruptor—Zomato—which has lined up its IPO. We also looked at the Power Grid InvIT IPO here and here.

The HUL results were good, its volume led growth strategy is working well, and the company should gain further market share. In common with other FMCG companies, it needs to take a re-look at what’s sitting on its shelves.

But input cost inflation and the resurgence of COVID have sprung a challenge HUL needs to overcome. In particular, there are reports that the virus has made inroads into the rural hinterland this time, which could be a tragedy given the lack of testing centres, hospitals, oxygen and ICU beds there.

The Reserve Bank of India’s bulletin for April, out this week, had a paper on asset reconstruction companies which could provide clues to the proposed bad bank. For those looking for positivity and literature, the bulletin’s state of the economy report may be worth perusing.

Finally, if you’re wondering about the title of this newsletter, ‘Apocalypse now’ is a straightforward description of the devastation wrought by the COVID second wave, it has nothing to do with the movie. The ‘jam tomorrow’ bit is the pious hope that we’ll have a bit of jam with our bread tomorrow. It’s from Lewis Carroll’s ‘Through the Looking Glass’, where the White Queen tells Alice, ‘The rule is jam yesterday and jam tomorrow---but never jam today.’

Stay safe,

Manas Chakravarty
Manas Chakravarty
first published: May 1, 2021 10:45 am

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