Creating a bigger impact!

chief investment officer
AK Sridhar
Chief Investment Officer

Market Matters April 2020

Equity market indices rebounded sharply during the month in line with global peers as key economies and central banks announced substantial stimulus to counter the fallout of the COVID-19 outbreak. Fixed income markets took cues from subdued crude oil prices and the additional easing measures taken by RBI.

Domestically, the government extended the lockdown in order to counter the pandemic spread. It also announced certain fiscal measures to stimulate the economy. The RBI announced further monetary easing measures in light of economic disruption due to COVID-19 outbreak. Economic data came mildly positive as industrial production & core sector data (for March) rose & inflation retreated somewhat. Trend of economic data continues to remain uncertain in the near term.

Over the past 3-4 years, global as well the domestic markets rally was primarily driven by multiple expansion and without any meaningful earnings growth. Notwithstanding the concern posed by COVID-19, it has merely acted as a trigger for the expensive valuations to mean revert. Prevailing global risk aversion scenario has led to the FPI’s continuing to pull out money from the emerging markets including India. In the near term, growth revival would be contingent upon the timeline when the lockdown measures are removed. Going ahead, impact of the recently taken governmental measures / central bank actions, resumption of supply chain linkages, improvement in monetary transmission, corporate earnings trajectory / shock and crude / commodity price trajectory would be keenly monitored. The silver lining among the dark clouds is that India remains a strong domestic oriented consumption story.

Since the economic growth trajectory remains uncertain in the medium term, further market correction cannot be ruled out from current levels. Rise in market volatility can also be expected but it can also provide attractive opportunities to accumulate quality stocks from both, frontline indices as well as the broader market. A gradual increase in allocation towards equity can be considered with a 3 – 5 year perspective. Equity as an asset class has proven its ability to deliver superior returns in the long term.

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