India with a possibility of sharp recovery will certainly feature in the shopping list of large institutional investors.
The world is going through an unprecedented crisis due to the spread of pandemic COVID-19. Never ever has the entire world got affected in such a manner. Social distancing and lock down has virtually shut the world for business and the experts are predicting an unseen and imagined forthcoming recession. While the scientists and pharmaceutical experts world over is working towards providing a cure and preventive for COVID-19, Governments are trying to control the spread of the pandemic through multiple regressive but deemed necessary measures. All the countries are also trying to provide fiscal and monetary stimulus to soften the impact of the shut down and the looming recession. The effectiveness or otherwise of these packages will only be known over a period of time.
Naturally with the above happenings, the capital markets world over have seen an unprecedented correction from their levels from early March 2020. The ferocity of the selling has taken the Pundits by surprise and has led to some amount of panic amongst the governments and regulators. The clamor of temporary shutdown of exchanges has also been gathering momentum. However in the midst of all these chaos and panic, there certainly lurks an opportunity for a patient and long term investor.
Though Indian capital markets have also seen unprecedented volatility and correction over the last few weeks, we need to take into cognizance, few factors beyond COVID-19 to arrive at some actionable intelligence. The injection of massive liquidity into the global financing system by the Central Banks in USA, Europe, UK, China and most of the other countries have created a situation where availability of investible surplus would not be lacking in the near future. Large institutional investors will start plotting their post COVID-19 strategies and emerging markets like India with a possibility of sharp recovery post the pandemic getting controlled, will definitely be featuring in their shopping list. On the other hand, while the outbreak of virus and its consequences having a significant draining effect on the government finances in India, the sudden and sharp correction in crude oil prices has led to a significant potential savings. The benefits of savings in import bills will definitely go a long way in helping the government of to eventually balance its books. Finally, the Indian front line stocks were by and large looking richly valued even in early March 2020. This is on the back of the fact that India has been going through a period of slow GDP growth and unimpressive corporate earnings growth. With last few weeks corrections most of the front line stocks are now looking undervalued considering their long term prospects.
For an investor with an investment horizon of 3-5 years, this probably will turn out to be a great opportunity for stock picking and building their long term portfolio. Acquiring good quality companies with top class management, in the growth sectors of the economy, at current levels will surely benefit investors in the long run. Also, few sectors world over, will get incremental attention and allocation of resources in the post COVID world.
Healthcare and pharmaceuticals can be an excellent bet, provided the prudent guidelines for selection of stocks in these sectors are adhered to. Also for a country like India, there will be spin-off benefits of US-Chinese trade War and COVID-19. Global leading manufacturers would surely like diversifying their sourcing geographically as opposed to keeping it concentrated in China. Established Indian companies in chemicals, agro chemicals, and specialty chemicals will start featuring more and more in the global supply chains. Also on the back of some encouragement from the government in India many other export oriented sectors can hope to occupy more space in the global outsourcing arena that has somewhat been left open for grabs post COVID-19.
Long term domestic investors should do well by focusing on the aforesaid sectors while building their portfolio in a calibrated manner over the next few weeks.