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Last Updated : Sep 12, 2020 10:18 AM IST | Source: Moneycontrol.com

Moneycontrol Pro Weekender | A perfect storm

Growth is the solution and if it needs a helping hand from the central government, it should be provided

Dear Readers,

India now has the dubious distinction of being right on top of the daily coronavirus cases league tables. But it hardly makes any sense to track these numbers, simply because the ICMR’s sero-survey found that for every confirmed COVID-19 case in May, there were 82-130 infections that went undetected. In other words, the number of actual infections in India may be 100 times the daily count.

The obvious question then is the one that many sceptics have been asking: is the fatality rate from the virus even lower than thought earlier? The study says it was 0.15 percent even in the worst-affected districts on June 1. Does that mean it’s a scare and severe lockdowns were not necessary, as some have argued? But the ICMR adds the warning that the fatality rate estimate is likely an underestimate because of incomplete death reporting and lack of access to testing facilities required to confirm COVID-19 deaths. Bluntly put, there are no reliable figures.

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In any case, it doesn’t really matter, because the government now seems desperate to open up the economy, never mind the rising infections. With the government reluctant to provide fiscal support, there is simply no alternative for the masses.

Too much focus on the centre’s high fiscal deficit is misplaced at this juncture, especially when state finances are also in terrible shape. Merely restructuring loans, while necessary, is not enough. Growth is the solution and if it needs a helping hand from the central government, it should be provided. The government’s lack of resources is likely to lead to stake sales, which are a key risk for investors in public sector companies.

The end of the lockdowns has led to an improvement in the mobility indicators, as our recovery tracker shows. Unemployment is lower, vehicle registrations have gone up and steel consumption is doing well. But as CRISIL CEO Ashu Suyash told us, “the sustainability of the recovery is unclear because of local issues and the spread of infection in Tier-III towns.”

Jefferies survey pointed out that India consumers were saving more in these COVID-infected times, which isn’t very good for a rapid uptick in demand. That’s also the message that came across from the HUL management’s presentation to global investors.

An analysis by economists at Nomura found that the shrinking of the economy has been the highest in India, among the major economies. That was also shown by the GDP data for the June quarter. The OECD composite leading indicators for August showed that the momentum of the rebound in the economy had started to falter in most countries, including India, except China and Brazil. The monsoons, however, continue to be a silver lining, which is why we considered this rural consumer play.

Equity investors too are turning jittery as the outflows from mutual funds in August show, although there is an increase in the number of folios, which means that new investors are coming in. Legendary hedge fund manager Stanley Druckenmiller told CNBC that ‘we’re in an absolute raging mania.’ But as a superb piece by Jamie Powell in FT Alphaville said, Drunckenmiller is full of ‘strong convictions held lightly’ and ‘he might have woken up this morning and said the exact opposite.’

Given the rising uncertainty in the market, which themes can investors look at? The government’s focus on import substitution could be a godsend for the Indian auto parts industry. For investors, Hikal is one stock that will benefit from this trend. One of the insights from the Jefferies survey cited above was that Indians have started to consider buying new homes. That is why we asked investors to look at HDFC and Repco Home Finance. Companies that are good at managing costs will always be in demand in the current environment, as will be those that are transitioning to new growth models and value unlocking---the recent performance of the RIL stock is an obvious example. We also told you how best to make money from this IPO. And finally, not many people know that returns from silver this year have thrown those from gold as well as from the S&P 500 into the shade.

We continued with our efforts to expand our offerings for investors by introducing our US Elections Tracker. Every week, it will bring you the latest trends in opinion polls as well as the betting odds.

Cheers,

Manas Chakravarty
First Published on Sep 12, 2020 10:18 am
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