Markets suffered a rare spasm of self-doubt this week, as a cocktail of risks that included the US elections, the lack of a further stimulus by the US Congress and fears of a second wave of the coronavirus in Europe, proved too much for the stratospheric valuation of US tech stocks. Federal Reserve officials didn’t help matters by underlining the fragility of the recovery. The beaten-down US dollar perked up, suggesting that reports of its demise had been greatly exaggerated. Markets across the world sold off, while high-flying silver crashed into a bear market.
Sure, the Flash Purchasing Managers Indices for September show a strong rebound in the US and Britain, but the recovery is stalling in Europe and economic activity continues to contract in Japan. And even for the US and UK, the commentary on the outlook is none too good. For the Indian economy, a survey by Bank of America Securities said the covid-19 outbreak is progressing from a supply to a demand shock, as incomes and jobs shrink. The report said that only 16 percent of those surveyed said they had seen no change in income or employment since the lockdown, while 19 percent said they have lost their jobs. Indeed, the International Labour Organisation says job losses in South Asia due to the pandemic are among the highest in the world. This will obviously lead to a postponement of discretionary consumption demand. The BofA report also said that while the kharif crop is good, farm income will be lower than last year because of lower crop prices.
We did find a stock, though, where the rural market should save the day. But the spectre of urban distress hangs over FMCG stocks.
Smaller firms, of course, have borne the brunt of the crisis, but then India is no country for small firms. The silver lining is that our recovery tracker is showing a healthy bounce.
The markets continue to hope for another round of stimulus in the US and Jefferies’ Chris Woods makes no bones about asserting it’s the markets that lead the Fed. That’s why he’s in favour of buying cyclical stocks during corrections. The markets echoed that optimism on Friday, with the Nifty reclaiming 11000 smartly.
This week was all about IPOs. We analysed the Chemcon IPO, discussed whether to subscribe to the CAMS IPO and advised investors on what to do in the unfortunate event of their having missed the Happiest Minds IPO and the Route Mobile IPO. We also took a close look at the Angel Broking IPO and whether it could lead to a re-rating of the broking sector. Nor did we miss GMM Pfaudler’s offer for sale. And to wrap it all up, we wrote about what the spate of IPOs means for the markets.
A buyback and a proposed de-listing provided fresh food for thought and fresh opportunities for profit.
Policy-wise, the big news of the week was the set of farm reform bills, which made the opposition see red, but which we considered to be a revolutionary change. We also said the minimum support prices system for crops needs root and branch reform. And finally, we analysed the implications of the agricultural reforms for Corporate India.
The government has also seized the opportunity to push through labour reforms and of course we gave it a rousing cheer.
The auto and related sectors were much in focus. We discussed the fortunes of the auto sector with the CEO of Amara Raja Batteries, suggested that Ashok Leyland may be playing the commercial vehicle cycle right and considered whether it was time to buy Ramkrishna Forgings.
And for the Big Picture event of the week, a UN agency decided to call a spade a spade and boldly said what few had dared to say before. It said covid-19 has raised fundamental questions about the way we organise society and the values that structure our lives. For India, that should strike home, considering that the Asian Development Bank said our score on a Wellness Index is lower than much poorer Ethiopia and Uganda. That should be a wake-up call, especially in these coronavirus-infested times.