Saturday, May 1, 2021

Divergent. Covid & Markets

 It is with great sadness, having lost a few relatives and friends' to this covid onslaught that I say that this Government has displayed zero foresight, planning and  empathy for the citizens of the country. Death from disease is common but dying from lack of oxygen or dearth of treatment is absolutely callous.

We are close to loosing almost a decade to lost growth, infrastructure development and industrial development. Our cities look almost the same as they did a decade back with decrepit bridges, a few new metro trains and slightly better roads.

Yet the stock markets are near all time highs and show no sign of remorse or fear. A dangerous situation and contradictory in nature. How long can we keep building in the growth potential and cling to the fact that nothing much is happening in the economy.
The move on various sector indexes has been sharp and volatile. Metals have moved globally and stocks like Tata Steel and SAIL have gone above long term trends in some cases most after 2007-2008 period. Every decade in India seems to the time when infrastructure would become world class and we would be rid of ramshackle amenities more in keeping with our aspirations. Pipe dream.

The swarming liquidity in the global system has been primarily responsible for the stock price climb be it the Dow Jones or Nasdaq or our very own NSE and BSE. I would pause and remember the wise worlds of Warren Buffet because sooner or later that is what is going to happen although in the short term the move especially in the small cap stocks will be going up.
Domestic economy is moving towards stagflation i.e. high inflation(7%) and low growth. With joblessness and not much business for the small and medium sector which forms the backbone of our broader economy, we are faced with the devil's alternative - loose fiscal policy for growth or tighter controls to control inflation?

The divergence is expected to continue on the back of a normal monsoon, fall in covid infection numbers or better managed vaccination.

My message over the past year has been simple. Buy value. Buy stocks of companies where you feel:-
  • The product is invaluable to daily living and even if prices rise it has to be in use
  • It is available in both online and offline form i.e. can be delivered even if there is a lockdown in place
  • Life saving products - pharmaceuticals, medical equipment 

This pandemic has changed consumer preferences more in One year than in the last 50 and some far reaching impacts will I presume be beyond predictions. Stick to what is immediately visible.

Our portfolio has given 63% in the last financial year and that has been due to calculated risks in Autos, textiles, financials and select metal stocks. I expect the rally in Metals to continue further with some beaten down counters coming up with better results.

We look at investing in unfashionable stocks that can become fashionable. Bottoms up Approachđź‘Ť

Stay safe and stay well.

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