How should you assess and reposition investments amid COVID-19?
Money does not have emotion.
Why are India's market indices rising, "cold-heartedly" amidst a tragic, ferocious second wave? No one knows for sure - perhaps, it’s the optimism of a quick recovery once our vaccination program succeeds.
Perhaps also, it’s how this played out for the US and UK.
Great if this assumption comes true. What if it doesn’t?
Remember, India's consumers and businesses do not have the benefit of government grants amounting to trillions of US dollars.
And there's no way to forecast how soon we will get this wave under control.
How should you assess and reposition your investments?
#1 Minimizing losses over maximizing gains
• If you cannot handle a sharp drop of 10-15 percent, lighten up. Remember, investing is not a game of T20 cricket, where you need to hit every ball… markets will give you enough “full-toss” balls to hit.
• Another way is to invest in leaders in their industry segments. Larger companies are wrestling market share and becoming stronger, more profitable.
#2 Go west young man. And east.
(a) Twin drivers of growth:
The US and China are today driving the world's growth. At a combined $35 trillion, their GDP is 43 percent of the world's GDP, and is expected to grow 6.50-8.50 percent in 2021
(b) Strength of the US consumer:
o Household incomes in the US have largely been protected by unprecedented government stimulus. As a result, Personal saving was highest-ever $4.12 trillion in 1Q 2021, compared with $1.20 trillion in 2019
o Current U.S. unemployment rate is 6.0 percent (March 2021), compared with 14.7 percent (April 2020 - highest since Great Depression)
o Personal consumption, the biggest part of the US economy, has surged an annualized 10.7 percent, the second-fastest since the 1960s
(c) US consumes, China produces
o China's average exports per month have grown to all-time high of $215 bn. Exports to US grew are back to pre-COVID levels (even higher), with significant recovery Aug 2020 onwards
o In 2020, China was only large economy to grow (2.3 percent)
o As per recent data, China saw a steady industrial production rebound (up 25 percent), retail sales increased 34.2 percent
(d) Investing in Growth, Margin of Safety
o Markets have rallied in US (NASDAQ up 58 percent, S&P 500 up 44 percent) and China (CSI 300 up 30 percent, Shanghai Comp up 20 percent)
o US markets at all-time highs; invest in a staggered manner
o China indices have recently corrected (between 8-18 percent) and offer higher margin of safety
#3 Opportunities exist in the worst of times
• Consider directing your India investments to ride growth from global demand (exporters) - IT services, engineering, and pharma are some sectors likely to benefit.
• IT services: research forecasts US$ 1 tr opportunities, translates into incremental USD175bn for Indian companies, in turn implying doubling of revenues from current USD150bn of exports.
• Consider adding new-gen companies now listing on our exchanges - technology, digital commerce, asset management, insurance, business services – are examples of such opportunities.
Not only does money have no emotion, it also has no color.
Stay safe. Happy investing!
(The author is Head, Investment Management, at Edelweiss Financial Services)Disclaimer
: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.