After hitting the recent bottom due to fallout in global market & increase in margin requirement by SEBI, the market bounced back due to improvement in global market sentiment as a result of stimulus & in expectation of Fiscal & Monetary package to be announced by the Indian Govt. The domestic market maintained the positivity as institutional buying increased during the last week of 2020 financial year, dated 31st March. The stimulus announced by the global economies like US & European were very encouraging, such a big size of quantitative easing can easily push the economy out of the recession in the coming quarters. The rate of recovery will be higher if the world health meter improves.
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 15th 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.