Indian market catching up with global peers

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Indian equity market was among the worst hit as the domestic economy came to a near standstill due to the lockdown. Post the initial clampdown, there was revival in global economic activity but India remained a laggard attributable to reasons like: stringent local lockdown measures and global markets in a risk-off mode leading to selling in emerging markets by foreign investors. At the same time there was no stimulus to invest in domestic equity market and no benefits for corporates. The banking sector was hugely hit and dubbed as the worst performer in India; given the fall in tepid outlook with fall in stress asset. The lockdown was so stringent that it is anticipated that economic activity in Q1 may be down by 40% on a YoY basis. This week, India is trying to catch up with the rest of the world after factoring all the merits and demerits of the stimulus package announced by the government. Now as India is reopening its economy, we are anticipating better economic activity in Q2 and are confident that the business is likely to survive well in the long-term. The big deals announced by banks and the easiness with which new equity offered by promoters and corporates are being absorbed by foreign and domestic investors has enhanced the view regarding India. There is also an expectation that more reforms will be announced by the government for corporates and sector highly impacted by the pandemic.

We are going to follow the global market which is very positive today in anticipation of a re-opening of economies. India may not be able to completely fall in-line with the developed economies and completely open the economy but we can expect a strong rebound in Indian economy in H2FY21. India is expected to do well in the long-term since we have not been widely impacted by the coronavirus and global firms now want to diversify their outsourcing from China to other emerging countries.

Regarding the weak Q4 GDP data and downgrade in rating by Moody, other than the short-term volatility, the market may not be impacted much by both the factors given the lateness or latency of data and biases in rating. Q4 GDP was good enough factoring the impact of the lockdown during the last week in March and mostly from the slowdown in global growth due to disruption in supply chain. It has also factored in the ongoing corporate results and RBI meeting, which provided a very weak outlook.

Indian market will attempt to catch up with the world equity market after being a huge underperformer YTD. Markets are trying to factor in that corporate earnings in Q1 will be a washout as a result of low economic activities. And will attempt to leverage-on the fact that our economy may not be opened completely as being contended by developed economies. But positively, domestic market will follow the global market, given a green signal to open the economy in India and abroad, having a ripple effect in India. The medium-term direction of equity market will depend on the success and effectiveness of the re-opened economy, in which we may underperform now but in the short to long-term we are likely to be a winner. From the range of 8,600 to 9,600 in Nifty 50 last month, it has updated to a new, higher range and reached 200-day moving average of 10,050. From the recent low of 8,800 the market is up by 15% in about two weeks. We may be range bound in the short-term with negative bias. The new range of the market during the month could be 9,500 to 10,500 with the average of 200-day moving average.

1 COMMENT

  1. “The medium-term direction of equity market will depend on the success and effectiveness of the re-opened economy, in which we may underperform now but in the short to long-term we are likely to be a winner.” If we are to be winner in the short to long term , doesn’t it mean we have to be winner in medium term also? In that case , between short to long term, how are we to underperform in the medium term? I could not understand this play of words. Please explain.

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