Equity monthly view for March 2020

Posted On Saturday, Apr 11, 2020


April 11, 2020
Quantum Equity Team

The month of March saw financial markets globally going into a tailspin. Global pandemic hit financial markets hard. Indian stock market was no exception. S&P BSE Sensex dropped 22.8% while S&P BSE 200 index fell 23.2% during the month.

Midcap and small cap indices had sharper fall. S&P BSE Midcap index and S&P BSE Smallcap index saw decline of 27.4% and 29.6% respectively in March. Such a significant fall has made many stocks look very attractive.

Healthcare, FMCG and IT were among the sectors which weathered the market crash much better. Healthcare index had a single digit fall. Consumers doing panic buying and over-stocking led to better volumes for non-discretionary items. Rupee depreciation helped IT stocks. Cyclical sectors such as banks, auto and real estate were hit most severely during the month.

Market Performance at a Glance
 Market Returns %*
 March 2020
S&P BSE SENSEX **-22.80%
S&P BSE MID CAP **-27.40%
S&P BSE SMALL CAP**-29.60%
LAGGARD SECTORSReal Estate, Auto, Banks
* On Total Return Basis
** Source-Bloomberg
Past Performance may or may not be sustained in future.

FIIs rushed out of door as there was higher risk perception globally. Stocks worth USD 8.4 Bn were sold by FIIs. This is one of highest monthly selling in recent years. Domestic institutions were buyers to the tune of USD 7.5 Bn in March. In 3 months of 2020, FIIs have sold USD 6.2 Bn of India stocks while DIIs have bought equities worth USD 10.5 Bn. Rupee depreciated during the month sharply by 4.8% against US dollar.

Internationally, as cases related to Covid 19 sored many countries announced stimulus measures. US Fed cut interest rates by 0.5%, bring them close to zero. Many other countries also announced a number of monetary policies. First stock markets reacted negatively to rate cut. Many nations also announced fiscal measures to contain the fallout as global demand has reduced and unemployment rose as a fallout of the epidemic. US government announced fiscal stimulus of USD 2 Trn, about 10% of GDP. Many other countries also announced fiscal measures to fight the economic slowdown.

Policymakers in India also responded to the crisis by several measures. A nationwide 21 day lockdown came in force starting 21st March. All economic activity barring essential services came to a halt. Transport services came to standstill, leaving people stranded wherever they were.

RBI responded by cutting interest rates by 0.75%. Key interest rate benchmark repo rate stood at 4.4%, lowest in recent history. CRR limit, requirement of cash to be parked by banks with RBI was reduced by 1%, boosting liquidity in the system. RBI also announced LTRO (long term repo operations) of Rs 1 Trn encouraging banks to lend further.

Government announced fiscal measures of Rs 1.7 Trn equivalent to 0.8% of GDP. Part of this money will go to the poor through bank accounts. The epidemic has moved from health problem to economic and societal and also turned into a humanitarian crisis. There are many sections of society and business which will find the going hard. Poor, small businesses, self employed have been hurt deeply. Some businesses such as hotels, airlines are at the frontline of the crisis.

A one month lockdown hurts the GDP by 8% (one twelfth of year). Given that the lockdown is total (as compared to some other countries where part of economy are functioning) impact will be very hard for India. Current stimulus announced is inadequate. More stimulus will be needed for India to withstand the unprecedented shock economy has witnessed. Many who migrate from rural areas to work in urban factories have gone back to their villages. They may not return soon, thus delaying the economic recovery even when health crisis passes by.

We remain very positive on equities at this point time. Investors should use this opportunity to deploy in equity if they don’t have enough exposure. Investors should continue with SIPs to take advantage of better valuations. Many companies will see fall in profits in fiscal 2021. This is more than made up by very sharp correction in stock prices, S&P BSE Sensex was down more than 30% at one point.

We believe the stocks we own have strong business and are led by competent management. They don’t have much leverage through debt. They will recover faster with resilient business model. Many have proven themselves through trying situations earlier.

India is likely to grow faster than many nations. Economy is dependent on domestic consumption and thus insulated from any global problems over the long term. While economic growth faces pressure in near term, better monsoon and measures to ease liquidity are likely to stimulate growth. While economic activity has halted in urban areas, things are much better in rural areas. Rural India will bounce back sooner after lockdown is lifted.

Data Source: Bloomberg

Disclaimer, Statutory Details & Risk Factors:

The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments.

Mutual fund investments are subject to market risks read all scheme related documents carefully.

Please visit – www.QuantumMF.com to read scheme specific risk factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the schemes objective will be achieved and the NAV of the scheme(s) may go up and down depending upon the factors and forces affecting securities market. Investment in mutual fund units involves investment risk such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited. The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.

Above article is authored by Quantum.

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