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ADVICE FOR THE WISE – JUNE 2020

FROM THE CEO’s DESK

Dear Investors, “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful”- Warren Buffet. The Covid19 curve is flattening globally. The central banks and governments around the world came out with a slew of monetary and fiscal measures, which ensured that stress on credit markets was swiftly arrested and credit spreads stabilized. As the global economy progressively opens up, there is a increasing evidence of business activity picking up and step by step moving in the direction of normalisation. Partial resumption of financial activities globally had already casted its mirrored image on equity markets. Global equity is staging a "V"-shaped recovery, whilst domestic equity indices are trading above March lows by approximately 33 percent. Corrections in equity market throws possibilities to buy quality stocks at cheaper valuations. We foresee this correction and the year 2020 from an investment opportunity perspective, in place of worry, as the risk – reward ratio in current scenario is favourable for equity investments. On the domestic front, the GOIs announcement of ~Rs 20 lakh crore stimulus package, represents around 10 percent of Indian GDP. Focus being on small business tax cuts as well as domestic manufacturing incentives and support to rural economy, which will pave a stronger foundation for the Indian economy going ahead. In an effort to support the ailing economy from the negative impact of the Covid-19 pandemic, the RBI on 22nd May announced a series of measures, along with a cut in repo and reverse rate by 40bps to 4% and 3.35%. In a span of just 2 months MPC had now reduced the policy rate by 115 bps. The advancing of its MPC meet and the additional measures in shape of liquidity expansion, support to exports and imports and continuation of accommodative stance displays RBIs agility and readiness to mitigate the negative effect of COVID-19 along with focus on growth. We expect the impact of earnings slowdown and economic downturn to be largely priced in, while the impact of strong policy stimulus is gradually emerging. Going forward, we foresee emergence of robust rural demand, lower CAD, stable rupee, subdued inflation print and lower interest rate scenario, which may act as tailwinds for the domestic equity market.


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Location: Mumbai, Maharashtra, India

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