Markets down with FLU
- The Coronavirus contagion is the biggest threat to markets today. It would adversely impact demand and supply chains leading to further slowdown in the global economy. However, a drop has been seen in new cases in China, South Korea and the virus is considered relatively less fatal (as compared to earlier outbreaks).
- Crude oil prices declined sharply to ~$35/bbl from their recent high of $65/bbl. Falling crude oil prices are positive for the Indian economy and will result in a lower current account deficit (CAD), lesser subsidy burden, lower inflationary pressures, etc.
- The correction of close to 20% across equity markets globally is in line with a deeper fall seen in leap years. However, it is followed by handsome returns over the next 6 to 12 months.
- It is difficult to exactly call the bottom. However, on a fundamental basis, the Nifty’s earnings yield vis-à-vis the G-Sec yield stands below the 12-year average and the market-cap/GDP ratio has come down to around 0.65-0.7x – again closer to the historic low levels.
- Investors would do well to keep the Big Picture in mind. The expected doubling of the Indian economy to $5 trillion mark beckons a huge opportunity for equity investors over the next few years.
- Large-cap picks: Kotak Mahindra Bank, ICICI Bank, HDFC Life Insurance, Bajaj Finance and HUL
- Mid-cap picks: Bata India, Mahanagar Gas, SRF, Divi’s Labs and Tata Consumer.