Memo 30 – Market View: 100 Days & Counting!

It’s been 100 days to the lockdown and Covid19 is far from over. To add to this, there are tens of things to worry about – Will our kids forget the real world? Can our domestic help come back? Will our favourite restaurants, cinemas, parks, gyms re-open? Will our vacation travel resume? Will our employers survive this phase?

But clearly, we are better prepared and slightly wiser too – we know that social distancing works, recovery rates are very high, medical infrastructure is getting better, governments have been supportive of the economy, and that our real household expenses are a fraction of pre-Covid days. If we all pledge to curtail the consumption of news & non-stop information bombardment, the next 100 days look more hopeful.

Economy & Markets – Mixture of hope & confusion

The sharp fall in global stock markets in March was due to uncertainty around human life and the sharp rebound in the subsequent 100 days is to celebrate the fact that most of us will be alive and even return to normalcy in near future. Another factor that has come to market’s aid is the large liquidity intervention by central banks around the world. Hence, the rise in stock markets should not be confused with the country’s economic performance. The pain in the economy is hidden for now, thanks to the moratoriums on debt payments and can manifest in coming quarters.

As an illustration, take the example of Jaideep, a pilot with a reputed airline and subjected to 50% reduction in salary. He cancelled the booking of his 3 BHK apartment with a Pune based developer. Since there are many more Jaideeps across India, the developer may be staring at a large number of cancellations. The developer in turn has slowed down the construction work, delayed payments to its construction contractor and is negotiating with the bank for elongated repayment terms. Thus, the suffering of airlines industry is passed on to sectors like real estate, banking, cement, construction, interiors, etc.

Thus, two things become clear – the economy will take a year or more to absorb the shock and bounce back. But the Governments & Central banks will continue to support the financial system so that there will be no systemic shocks. This can provide a floor to markets and investors can adopt a stock specific approach.

Your investments – some areas of clarity

Too early to jump into new trends: We are always excited by new trends & recent happenings. The recent excitement is around which companies will benefit due to work from home theme (technology or real estate?); from the need to continue social distancing (Automobiles sector?); from need for home deliveries (last mile logistics companies?). However, these are early days and trends are not clear. For illustration, if you have to permanently work from home, wouldn’t you want to buy a bigger house? But work from home might also mean lower future salaries and buying a bigger house would mean higher EMIs.

Focus on things that won’t change: Maybe it’s time to focus on things that will not change – clearly, the need to eat & live better (food & health sector); the need for entertainment (gaming, drinking, smoking, socializing) and the need for financial services (insurance, investments, borrowing) is here to stay. Even while investing in such sectors, never forget the basic rule – companies with the highest chance of survival are the ones with strong balance sheets, leadership position in their micro-market, track record for innovation and customer satisfaction of its customers.

Sticking to your long term plan: It is easy to get excited or scared by happenings in the near term. In fact, the near term is highly overrated. This is despite the numerous ancient stories that enlighten us about success, that it is a result of consistent efforts over long periods and not a random impulse decision. Ignore the short term noises and continue to have a balanced asset allocation across cash, fixed income instruments, gold and stocks.

Trivia – A little bit of everything!

“A little bit of everything has never killed anybody” – the last 100 days re-iterated this age old saying through the story of Aparna, a diligent investor. We call her diligent because she has adhered to her asset allocation plan to the last decimal point. Her portfolio is a healthy mix of equities (stocks, MFs, ETFs), fixed income (FDs, Govt bonds, corporate bonds, ETFs and REITs) and gold (digital, physical).

During the market meltdown in March’20, her equity portfolio lost 20% of its value. Though she was not surprised by that, she was a bit surprised to see that her bonds too had lost 5-15% of their value. But she was most surprised when rumours started floating around that private banks like IndusInd & RBL may face problems. She even enquired if her FDs with ICICI Bank were safe!

That was the first time in last two years that FDs seemed like a god-sent instrument and no one would complaint about the low returns. Beyond FDs, Aparna’s portfolio had gold bonds, which gave her further relief as gold prices in India rallied to an all time high. Thanks to her adherence to the diversified asset allocation plan, her financial anxiety levels were low even during the worst period of Mar-April’20. The worst is clearly behind and stocks & bonds have rallied significantly since the March lows. But the age old wisdom got re-iterated yet again i.e. do not put all your eggs in one basket.

Feel free to reach out in case you need professional help with your investments!


1. Equity as an asset class in extremely rewarding in the long term, however, only individuals who can bear interim volatility should invest in stocks. Kindly consult your investment advisor before acting on advice provided here.

2. Names of individuals mentioned above have been changed to protect their identities.