By: Paras Baywala
After the recent IMF projections of India’s 11.5% growth rate, Indian bourses have turned bullish, considering faster than expected recovery. On one hand, we have a multitude of problems topped with the pandemic while on the other hand, we have the Indian economy standing on strong roots.
When a new virus was found in the state of Wuhan, which will soon be called Covid-19, and it would change everything. Months after the virus was found, it began to disrupt almost 200 countries across the globe. Severe lockdown & precautionary measures were placed which made the situation
vulnerable. The S & P index dipped to $2,237 on March 23 from a record high of $3,386 the previous month, more than 45.5 million people became unemployed and the GDP growth rate was not even in the charts. In Feb 2020 GDP of developed nations was at a negative growth rate of 10% whereas India hit a negative growth of almost 24%! This surely called for panic, and yes many got scared & sceptical about the future; this was even mirrored in the stock market crash (Feb 20, 2021, to April 7, 2021), which was later named “coronavirus crash or coronavirus correction”. The stock market was very much expected to go down, the economy had already gone into a recession which meant lower dividends & profits, personal savings rose by 30% compared to last year same time and a multitude of more factors. Large amount of money was burnt in the market and job losses became rampant in the economy. Something like this wasn’t seen since the great depression.
So, was this the end of the economic boom?
Well, that’s what most people thought, or forecasted, but the reality struck differently. By September 2020 most of the world economies had a V-shaped recovery, the US Billionaire wealth rose by 20% and the world’s richest (Fortune 500) had added more than 1.8 trillion USD in their personal wealth. Also, it’s not only about a few sectors or groups, as Indian start-ups also raised $9.3 billion in funding and the number of unicorns rose to 70 this year alone. If someone looked at the stock market, they would notice the indices (BSE & NSE) being a long-shot bull and ‘bear’ wouldn’t even daunt their sleep. These milestones just happen to prove all traditional theories wrong and people who were earlier shouting “1929 is back” were nowhere to be seen.
The automobile industry along with few others in the manufacturing space were hit the worst by lockdown. Revenue started to go down, and it became difficult for many small firms to reach breakeven, resulting in a complete shutdown. Major players picked up shortly in September & October due to price hikes and aggressive strategies, but the impact was severe. On other side, the Conglomerates industry & IT industry surprisingly were quite stable throughout the year primarily because of the nature of the product and services they offer. By Jan 2021, most of the businesses had reported revenues till pre-covid levels.
IT sector, one that made a good sailing, is currently one of the favourite investments for all speculators and investors. NIFTY IT made an all-time high of 27,176.50 and rose by 1.63% MoM on account of strong earnings growth in Q3FY21 by IT companies. Strong growth in dollar revenue,
closure of new deals and healthy margin expansion resulted in a quarter which otherwise is usually weak for IT firms primarily due to lesser working days on account of the festive season. Similar to the
broader market, the counter too saw a massive sell-off due to weak global cues and a stronger rupee. The top gainers in the index were L&T Infotech and Wipro which rose by 8.2% MoM while the top loser in the index was Coforge which was down by over 12% MoM.
The economy reflects the status of the country and so does the stock market but on a closure look, the stocks majorly compromise the large firms which can withstand such blows, not the extremely vulnerable MSME groups. MNCs & big domestic players were capable enough to adopt remote control of their operations. They could strategize well in advance about how to cut cost or maximize sales, and take the most advantage of it. Micro, small & medium enterprises did not have such resources for transit to this new world. The majority of them are continuing to struggle with irregular demand, lack of reserves, and the inability to go virtual. Ironically the unorganized sector consists of almost 90% of India’s workforce and is dominated by blue-collar operations. This is directly reflected in our day-to-day lives but not in the markets.
Globally, the pandemic has narrowed the risk appetite of investors but due to excess supply of liquidity and positive vaccine news investors have become less risk-averse. This excess infusion can help yield higher return but is subject to higher uncertainty if liquidity and financing sources dry out. With such because of global geopolitical risk mentioned above, investors will want to shift to safer regions making investor’s sentiment highly sensitive. The current Indian landscape has a lot of prospects and with the budget being announced the day this article is written, it even gains more
By: Paras Baywala