The major reason behind this change of sentiment is related to a set of continuous rare events such as Health Scares due to COVID, loss of jobs, cut in salaries, financial sector fragility, economic crash because of the imposition of lockdown, poor relations with neighbor countries. These all just happened within the last four months. This has impacted the common investor psyche to believe that market condition is as equally bad as other things.
Indian equity market and debt market valuations have become more attractive recently. There is a fall of about 50 per cent in India’s market capitalisation to GDP. The 12-month price to earnings ratio also recorded a decline of below 14.5 times and other market zones were also approached which had witnessed some handsome gains in the past for valuation measurement. Which suggests buying equities and increase allocation in a faltering manner.
Its been recorded by the analysts on their high-frequency data tracker that economic activities are getting back to track but in India, it is recovering at a faster rate. Meaning the time period might be shorter taken by the economy to return to its normalcy level than previously expected.
The global stimulus package that is both monetary and fiscal support is also helping in strengthening this trend. For instance, the stimulus package provided was U.S was around 20 per cent of its GDP, considered as the highest fiscal stimulus since World War II. Whereas in India, the heavy lifting is being done by monetary policy only. Fiscal expenditure status remains muted. This could be another partial explanation of India’s Non-Performance. In spite of that, reopening is the biggest stimulus required by the economy.
The above-mentioned trends is a clear indication of investors should continue allocating incremental capital to stocks. This uncertainty is going to co-exist until this unprecedented situation unfolds. Investors are required to differentiate between forward-looking financial markets and the events revealed today. Many events might not have long time impacts in business earning and hence on their intrinsic values.
That’s why out our recent slang is to “Buy on Dips” and “Not Sell on Rising“. Fortunate Trading!