The US Fed’s policy decision to adhere to a zero interest rate as long as necessary provided no justification. For the worst USQ2 GDP data (-32.9% per annum) and weak unemployment data for the equity market. Q3 GDP is expected to be better than Q2, but there is a resurgence in virus cases worldwide. It will affect business sentiment and the stability of the rally. India failed to stimulate the Unlock 3.0 market as earnings results took precedence and became volatile during the expiration week. Leading to financial losses.
YTD, Nifty down 50-9 percent, Nifty Bank down 33 percent. Already under tremendous pressure from the NPLs and low credit growth from legacy issues. Shadow banking and the slowdown in the economy are the main reason why the financial sector is not functioning as well. Initially, it was speculated that the gross NPA of commercial banks scheduled for September 2020 would fall to 10 percent. But now this view has completely changed. This is because the sector has been unable to get out of the legacy issue and the epidemic has affected property quality, credit and economic growth have plummeted. The key question is whether these issues are a factor in current bank stock prices. The Nifty Bank Index, a set of the top 12 banks, will have a value of 1.5x over the 1-year forward P / B after hitting a seven-year low of 1.1x. We think joining is the best strategy for banks. For the equity market to function well, it needs to rely on the performance of the banking sector, which is the main nervous system of the economy & the market, which accounts for more than 1/3 of the total market capitalization of India.
In 2020, retail investors have been investing well since the sudden market crash. During the fall of 2008, retail investors were heavily influenced by large exposures in the Mid, Small & Micro Caps, which extended the period of global equity market consolidation due to the global financial crisis. It is very inspiring here to know the positive change in the investment pattern of retail investors. They need to have a good understanding of their own risk aversion as well as know about investment and well-equipped platforms. We can also expect more retail investors to benefit from better exposure to quality stocks, MFs, and lower levels of leverage. We should also note the fact that retail investors will benefit from a limited loss in jobs and cash flow without lowering sentiment. This triggers a huge jump in free time which induces high equity investments.
As the Indian equity market is one of the most valuable stocks in the world, its stability may be problematic, followed by the US & Japan. This may be due to higher-than-expected double-digit growth in FY22, for which we already have many reasons. In this time of uncertainty, we are challenging the market on a daily basis. In terms of valuation today, we are trading above the pre-COVID-19 level with no guarantee of growth over the next six to 12 months.
The change in control over margin funds in August, the second Q1 result forecast is very weak. And momentum may be tested in the coming months due to factors. Such as all-time high values, escalation in the US-China trade war, and high volatility. Recently in the global currencies market. The catalyst for growth in the economy has been reduced due to global disruption. The market has been led by a few IT-enabled companies, with hopes of reopening the economy and financial assistance. India VIX reduced to 24x, which is a 3 month low. The steady rally in world gold prices and the fall in the dollar index (DXY) to a two-year low is a sign of increased risk in the coming months. It is advisable to exercise caution and caution, as the safest sectors are gold, AAA/government bonds, pharma, IT, and FMCG.
Author Vinod Nair, Head of Research at Geojit Financial Services.