So, come 09:15 am, every day, you are in an unenviable position. You feel the urge and the confidence that you now have the resources to tame the market that has so far eluded you when you were busy with work. 

Stock market, undoubtedly, presents you with abundant amounts of nervous action, at an unusual level especially now, with the potential of making as much money in a few minutes, as one would have witnessed in the week ending 27 March, which would have otherwise taken you a few years. But, the other side of the coin says, you are also likely to lose in a few minutes, what you might never make up in your life ahead, as it is a rarest of rare event that we are in now. 

So, let us revisit a few investment themes for the sake of those at home, and

1. Have a relook at SIPs.

Continuing SIPs blindly may hurt you. Here is why. 

a. If your financial situation has turned for the worse, you should stop SIP; the rainy day may have arrived already. But if you feel indecisive about continuing SIPs, then you still have your wits around, and would do well to remember that you started this SIP in the first place, to get the better off such indecisive situation, and be unburdened about the challenge of making something out of the market irrespective of the trend; be it sideways, up or down. But now that we are here, let us acknowledge that these are not normal situations that the law of averages should be applied to, as we are over 30 percent below the record peaks despite a 1000 point rise in Nifty in the week ending 27th March. And hence you could consider altering the SIP amount to a lump sum equivalent to say 3x so that you catch the low prices more strongly than you would if you were to space it out on a monthly basis. Given the wild swings, you could also consider changing the timing of the SIP flows to weekly or to an appropriate frequency or date that you feel would best capture the lows. 

b. If your stock portfolio consists of micro caps or companies with poor track record, then, consider stopping SIPs to those companies. Such companies are less likely to recover from the virus inflicted disruption. Instead divert them to front line companies which are more stable and re divert them to smaller cap opportunities when the market stabilizes.

2. Redraw your trading plan

a. Avoid Mondays, embrace Thursdays. Both, as far as possible; save exceptions. Monday is always an iffy day. The two day break drives a wedge into the traders’ sentiments. The weekend breaks the momentum, and there is always fresh news that needs to be priced in on Monday in the initial hours of the day, followed by repricing it as the day evolves, as traders doubt if they had over bid. So, if a safe trading approach involves avoiding Monday then the starting point would be how they close out on Friday. Obviously that doesn’t make Friday the villain though, but Friday always puts a cap on markets’ gains. So the best way to limit the damages, would be to ensure that you are at your aggressive best prior to Thursday’s close. 

b. Wash your hands properly, eat right, and sleep at least 7 hours. Since you have a lot of time at hand, and given the fact that you feel relaxed being at home, your safety fences or measures that protect you in a normal work week, may not be up and the chances are that you might enter the market hurriedly, unprepared and expose yourself to a risk that you would otherwise not be. The three activities are the least that you could do to feel responsible and avoid taking a laissez-faire approach. And also the small matter of keeping your immunity at its best. 

3. The 5th wave

a. Elliott wave is a very useful friend for the trend trader. Perhaps not as much, if one were to go by pure counting methods, as it gets too complex to be accurate or practical. But even the most novice of a trader would benefit if he were to appreciate the concept of waves in understanding the directional moves and corrections. The concept essentially says that every major move consists of 5 waves (3 impulse moves in the direction of the major move and 2 corrective moves in the opposite direction). That be the case, we can try if the impact of Corona virus can be mapped through Elliott wave. Its impact on financial markets have been massive anyway. As per Elliott Wave concept, the first wave always happens in a shroud of secrecy. Only a few participate initially, and a large section of people do not happen to spot it until well into the later stages of the move. This is what happened with China. While the world took a note of the virus in late January or February, the infection had already spread deep into Wuhan, China where the first case, as per some websites, was reported as early as 17th November 2019. So the period from November through January 2020, can be construed as the first wave. The second wave, which is a cooling down period, or a correction in market terms, tries to disbelieve what just happened through the first wave, doubting the very possibility of what could unfold, as foretold by the first wave. This is what happened in Kerala through late January or early February, when the first case was reported, and quarantined and treated to be infection free. The third wave is a confirmation of the first wave, the difference being the size of the third wave being huge, in comparison, as the word goes out, and the event that had unfolded in secrecy is now out in the open. This is what happened, or is happening since late February or early March, as more and more countries across the globe got infected on a massive scale, Iran and Italy initially, and later to the rest of Europe, US, as well as other populous nations including India. So, the community stage, when the infection is not via foreigners anymore, but by the locals themselves is a powerful stage, and sits well with the concept of the third wave in financial markets, in terms of the size, power and the awe that it leaves on the participant. By the same yardstick, as and when countries across globe come out of their quarantine periods, and heave a sigh of relief, the fourth wave will start, witnessing a decline in infections, something akin to what we have witnessed in China already. The larger wave count, however, is not complete, until we see a fifth wave, a relapse, or a revival of infection spree, and hopefully a truncated one that does not surpass the infection rates of the third wave. 

b. So, where are we, on a global scale? Perhaps somewhere into third wave, which is already proving long and ravaging. The fourth and fifth are yet to unfold.

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Yesterday, the first day of the financial year started off on a negative note, impacted by the negative global markets and also domestic uncertainties with regards to Banks’  stressed assets and auto numbers. FIIs have net sold around Rs.62000 crores in Equity in March and with virus infections increasing, markets are anticipating a worsening of the situation.

Regarding the size of stimulus package announced in India, it is good enough assuming that restriction on business will not be for more than three months, for which the stimulus amounts to 4% of India GDP. It provides sustainability to unprivileged, rural & agriculture business which is the largest section of our demography. In terms of business it provides stability to defensive, staples, farm and FMCG. It also provides confidence that the consumption-oriented business will survive and come back to normalcy post the successful lockdown, the economy is slated to open on 15^th April 2020. Banks will also benefit from relaxation in classification of NPA, higher treasury gains and reduction in interest cost. This is the time we should focus on domestic oriented business which are self-sufficient and have low correlation with external export & import of material. Such defensive stocks are likely to outperform the market with huge spread in the period of recessive risk in the year of 2020. For others and growth-oriented business like Infra, Cement, Export, Metals & Discretionary will do well only after the economy has moved out of recessionary risk, improvement in country’s liquidity.

At the start of the year, the market was robust in expectation of a reversal in the domestic economy. Today, the data suggests that we are in a recession for FY21, due to fall in economic activity in Q1 & Q2. On a positive note, given the sudden crack in market, the stock prices have factored a good part of it. Stock market trend may continue to be challenging in the near-term and will overview the opening of business post lockdown and watch for its effect to the economy. If the lockdown of 21 days in India becomes successful and the domestic market opens then the coming weeks will be very promising for the market. At the same time, we need recovery in global lockdown & health meter.

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India’s orderly response

India has been managing this crisis very thoughtfully, in a step-by- step manner. We started with the Janata Curfew on 21st March, followed by a 21-day complete lockdown from midnight of 24^th March. Importantly, we went for a complete lockdown much before many other countries ravaged by the pandemic did. The lockdown was followed by a massive fiscal package of Rs 174000 crores, which was more a humanitarian package to help the poor and vulnerable, than a stimulus to boost the economy. The very next day, on 27^th March, RBI announced the most comprehensive package in its history to ease the credit markets, boost the economy and to bring relief to borrowers.

The fiscal package

The comprehensive fiscal package from the Centre can bring great relief to those impacted by the lockdown. The supply of additional food grains free to all ration cardholders will ensure that nobody goes hungry. Cash transfer to Jandhan accounts, though limited in amount, is a timely help. The revision in MGNREGA wages though desirable, will not be of much help in lockdown times. Front-loading of PM Kisan transfer and measures to help the elderly and vulnerable women are laudable. Reaching help to the millions of very poor in India is a Herculean task; there are thousands who are homeless, have no bank accounts and none to support. The women and elderly in this segment are highly vulnerable. The civil society and NGOs, who are already doing a great job, can deliver effective help to such segments.  For the well-off segments, this is the time for charity.

Much of the action is at the state level. Some states are doing a great pro-active job in crisis management. A major deficiency of the Centre’s fiscal package is that there is no meaningful transfer of funds to states.

RBI’s Bazooka

The RBI, rising to the occasion, delivered a better than expected response. The massive cut in repo and reverse repo rates, by 75 and 90 basis points respectively will bring down the cost of credit to borrowers and the 1 percent CRR cut will release Rs 1.37 lakh crores into the banking system. LTRO of Rs 1 lakh crores enabling banks to buy corporate bonds and CPs will facilitate easy credit to corporates and ease the pressure on lending. The moratorium of three months on term loans is a big relief to borrowers in this time of stress. These measures aimed at augmenting liquidity, improving monetary transmission and relaxing repayment pressures will have some benign effects on the economy.

Global economy will slip into recession

With most parts of the world in lockdown, most economic activity has come to a grinding halt. This is not a slowdown in economic activity; this is almost a total shut down of economic activity. Recession is inevitable. In the last serious global recession of 2008-09, the real economy was working even though the financial sector was paralyzed in the developed world. Now, it’s different. Most parts of the real economy are not working. The only question now is: how prolonged and intense the recession would be? That would depend on biology rather than economics.

Biology would dictate economics

Monetary stimulus will be largely ineffective in a recession, triggered by collapse in demand due to fear, aggravated by complete lockdown. Fiscal measures announced are more a humanitarian effort to mitigate the sufferings caused by the lockdown than a stimulus package to revive the economy. Therefore, the key to economic recovery will be biology rather than economics.

If covid-19 is contained and the numbers of new infections and deaths are brought down- as China, South Korea and Singapore did -economic activity is likely to resume and the recession would be short-lived. If, unfortunately, the virus were to spread exponentially, the consequences would be devastating with an intense prolonged recession. Therefore, biology will dictate economics, going forward.

Recovery? Yes. Timing unpredictable.

This epidemic too, like all previous epidemics, will also come to an end and the global economy will recover. But when the epidemic will end and when global economic recovery will begin is difficult to predict. Perhaps in 2 quarters. The recovery in markets is likely to be swift and sharp. Let’s hope for the best.

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