U.S. stock benchmark has surged about 45% from its March low and wiped out 2020 loss with a historic rally. This may be due to the US Federal Reserve pump-priming and the gradual reopening of the economy. A far better unemployment rate in data worked as a catalyst, the street was estimating the jump in the unemployment rate in May to be 19% but the actual figures fell to 13.3%.
On one side, the economy is gradually opening up in India. This week we can see offices, shopping malls, religious places, Restaurants and hotels been opening up in the non containment zones. The negative side is we are opening the economy at a time when the number of COVID 19 cases is on its peak. This will definitely the risk of increasing the cases.
China’s official manufacturing Purchasing Manager’s Index (PMI) in May was 50.6. (PMI figures above 50 indicate expansion). India Manufacturing PMI is at 30.8 in May 2020 from a record low of 27.4 in the previous month, much lesser than the required figure of 50. Companies don’t see any reason for expanding or going for fresh CAPEX immediately because of the low utilization level.
One thing I didn’t understand was, why the supreme court is willing to waive off interest on loans during the lockdown period knowing the fact that India has the worst bad-loan ratio in the world. Reserve Bank of India (RBI) is strictly against it because this may thrash the financial system and Rs 2 lakh crore will be lost if interest is waived. Banks already have their NPA backlogs and as per the latest report of Crisil, India loan growth could hit zero this financial year. Yes, you heard it right, ZERO, that’s lower than 6.1% the previous fiscal year, which was already a multi-decade low.
As per world bank due to COVID 19, India’s economy will shrink by 3.2% in the current fiscal, global GDP will contract by 5.2%, the worst since World War II and nearly three times as steep as the 2009 global recession. It would be India’s fourth recession since Independence, first since liberalization, and perhaps the worst to date. World Bank also projected deep recessions for advanced economies. The report forecasts a 9.1% contraction in real GDP for the Euro Area and a 6.1% contraction for both the United States and Japan.
The Bright Side
In India, NIFTY50 rallied whopping 38% form its March lows, FIIs bought Rs 23,000 crore ($3 billion) in the first seven days, compared with sales of Rs 58,600 crore in March and Rs 4,100 crore in April. Historical data for last 11 yrs suggests June belongs to bulls.
FIIs invested nearly 40% of what they sold in the entire March. It was always a good sign for the market when FIIs turns optimistic. The purchases were higher in India than in South Korea and Taiwan, which received $345.3 million and $853 million, respectively. Japan has seen an outflow of $352 million.
Liquidity and the rally in global markets have fueled NIFTY50 to break 10,000 levels a few days back. The next big resistance is 10,350 levels which are the 200 weekly moving average. Since the NIFTY broke the 200 weekly moving average on the downside in March, this will be the first time it goes and retests it. Breaking 200 weekly moving average would be mean, that we again go into the structural Bull Phase. Any weekly closing above this figure will signal fresh upmove or any reversal from that level could signal a fresh downside.
“I think the Covid-19 crisis has been blown out of proportion and has created an unnecessary fear of psychosis. After all, it’s a flu, and not plague or cancer. I do not think anything will change in the long run. We will travel and go back to restaurants. The mother of all bull markets has just started” –
So, those who are thinking that the party is over must know that the party has not even started yet.