Stocks to be re-rated post COVID-19

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Post COVID-19, the situation worldwide has worsened rapidly and impacting , the Stock Markets have fallen beyond expectation globally.Indian Stock Markets are no exception to this free fall. There are markets which denied to fall went on to close the markets.
Today Indian Stock Markets have further fallen and are almost reaching down to the level of May 16, 2014, the day when Mr. Narendra Modi was first voted to power: on this day the Sensex was 25,000 and Nifty was 7500.
On a further deeper analysis, it is now perceived that the World is heading towards unprecedented situation and all sections of the Indian economy are showing worrying symptoms.

This has contributed to lower the confidence of all sections in the economy and we are all frightened as to what will happen next?

The frightened state of mind is gradually increasing, and this is not good for India as frightened mind is more dangerous which may lead to commit avoidable mistakes.
This situation needs to be guarded carefully; collective sense of responsibility should take precedence over all other issues / factors.

On this background, I foresee a few things to take place in India

  • Re-rating of the stocks is inevitable. At the time of writing HDFC Bank is trading close to Rs.775, Bajaj Finance is trading Close to Rs.2500 and Infosys is trading near Rs.600 levels. These price levels look fairly valued.
  • The present economic situation of the economy would further worsen due to the lock-downs and travel bans. There would be no deal making taking place in the near future.
  • The Un-employment may further rise as the businesses would learn to work in the minimum labour force and would not want to add on to more labour if they realise that the additional labour is just a cost.
  • In a situation of long run Curfew/ Lockdown, the daily wage earners will be adversely impacted, and they may find difficult to run their day to day living expenses. The household maids/ security personnel may not be able to earn bread for themselves and their families resulting in socio-economic problems which will be required to be addressed by the Government of the day.
  • With factories/ services sector Lockdown the entire economy will be standstill and after few days’ citizens may not get their salary/ wages and we may enter the situation of unsustainability.
  • Government may have to unwillingly and forcefully allow widening of Fiscal Deficit to run the economy and meet the unprecedented expenditure on COVID 19 which may have other serious long-term repercussions including rising inflation.
  • Agriculture Produce may not get desired prices and perishable agriculture produce will be sold at throw away prices resulting into further Agrarian distress.
  • RBI to take pro-active measures to provide reliefs to ensure smooth running of the economy and allay the fears.

This situation of instability would be the same all across the world. Investment Giant Sequoia Capital has already called this event as Black Swan 2020 event. It is interesting to note that Sequoia has grabbed every such event as an opportunity to invest in the great companies of the world. Hence, there would lot of skepticism in the stock markets across the world today, but those who pickup the stocks at these levels would definately make a huge amount of money as the situation stabilize and the world comes out of the currently instable situation.

In view of the above, I feel the Political/ Ruling establishments including opposition must come together, ponder upon the emerging challenges/ issues and draw a National Policy to combat the effects and implications of the existing situation emerged out of COVID -19.
The National unified approach, inter-alia, can arrest further deterioration of all factors in the economy. This will create confidence in the minds of citizens/ society and further deterioration can be arrested at an early stage.
This is a War like emergency situation where self-restraint will be playing significant positive role and will help re-build the economy aiming at enhancing the conducive atmosphere in the country.
In my view this COVID 19 has provided an opportunity to all Indians to Re-Build the Nation and improve socio-economic atmosphere.