Investing in the Times of
COVID -19
April 1,2020
Rapid spread of Covid-19 globally seems to be peaking out
Covid-19 has spread rapidly to all parts of the world over the past few weeks
The rapid spread of Covid -19 risked overwhelming healthcare in various countries given
Very Infectious nature of the disease
Need for 10-20% of infected people to get hospitalized
Only option to decrease the spread of the disease was to implement unprecedented
social distancing measures
Such measures have brought the world to a virtual standstill and is hurting the global
economy substantially
The question now is how long will this last and what will be the path to recovery
Unprecedented measures taken by Governments globally
Date
Country
Total cases
Action taken
Current cases
Current status
23 Jan 2020
China 643
Lockdown
of Hubei province
81,518
Slowdown
in new cases from mid Feb onwards. No
new
domestic
transmission related cases currently.
09 Mar 2020
Italy 9,172 Nationwide lockdown 1,05,792
Daily
new additions peaking out at ~5000 cases.
New
cases
expected to gradually decline from here on.
13 Mar 2020
Iran 11,364 Nationwide lockdown 44,605
Daily
new additions peaking out at ~3000 cases
14 Mar 2020
Spain 6,391 Nationwide lockdown 95,923
Daily
new additions expected to remain high in
the
immediate
future. Should decline thereafter.
16 Mar 2020
USA 53,740
Social Distancing Guidelines
issued
1,88,530
First
daily addition of over 20,000 cases. US to
remain
the
epicentre of Covid-19 globally for next few weeks.
22 Mar 2020
India 396 Nationwide lockdown 1,397
Daily
additions still very low. Proactive measures
taken
can
help prevent an outbreak in India.
Current cases are as on EOD 31/03/2020
Measures taken by some of the Governments globally
Shutdowns seem to be slowing the pandemic finally
Data as of 30/03/2020
0
100000
200000
300000
400000
500000
600000
700000
800000
900000
0
10000
20000
30000
40000
50000
60000
70000
80000
22-Jan-20
5-Feb-20
19-Feb-20
4-Mar-20
18-Mar-20
Addition Confirmed cases RHS
China & Korea witnessed decline in new cases post measures
China – New cases almost down to zero South Korea - New additions have slowed down significantly
Data as of 30/03/2020
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
0
2000
4000
6000
8000
10000
12000
14000
16000
22-Jan-20
29-Jan-20
5-Feb-20
12-Feb-20
19-Feb-20
26-Feb-20
4-Mar-20
11-Mar-20
18-Mar-20
25-Mar-20
Addition Confirmed cases RHS
0
2000
4000
6000
8000
10000
12000
0
100
200
300
400
500
600
700
800
900
21-Feb-20
28-Feb-20
6-Mar-20
13-Mar-20
20-Mar-20
27-Mar-20
Addition Confirmed cases RHS
Europe – New additions slowing in response to the measures
Italy - New additions are firmly on the downswing Spain – New additions seem to have peaked out
0
20000
40000
60000
80000
100000
120000
0
1000
2000
3000
4000
5000
6000
7000
23-Feb-20
28-Feb-20
4-Mar-20
9-Mar-20
14-Mar-20
19-Mar-20
24-Mar-20
29-Mar-20
Addition Confirmed cases RHS
Data as of 30/03/2020
USA driving new global additions currently
Germany – Also witnessing peak in cases in line with Spain USA – Rapid increase in cases and new additions
0
10000
20000
30000
40000
50000
60000
70000
80000
0
1000
2000
3000
4000
5000
6000
7000
8000
1-Mar-20
6-Mar-20
11-Mar-20
16-Mar-20
21-Mar-20
26-Mar-20
Addition Confirmed cases RHS
0
20000
40000
60000
80000
100000
120000
140000
160000
180000
0
5000
10000
15000
20000
25000
3-Mar-20
8-Mar-20
13-Mar-20
18-Mar-20
23-Mar-20
28-Mar-20
Addition Confirmed cases RHS
Date as of 30/03/2020
But what about the cost of shutdowns and life post shutdown?
Due to lockdowns the rate of spread of Covid-19 is coming down in various countries, but at a
huge economic cost
The biggest worry is that the outbreak can re-emerge if measures are rolled back. However,
key positives are:
Healthcare facilities around the world are being scaled up significantly (This includes
hospital beds, ventilator manufacturing and testing capabilities)
Vaccines and cures are being worked upon frantically, though they may be 12-18
months away
Logistically governments are far better placed to handle any re-surge once they start
rolling back the social distancing measures
China offers the biggest encouraging data, as they have brought the outbreak under control
and are now in the process of opening up their economy again
Monetary & Fiscal measures will limit fallout from shutdown
Source: imf.org
Country
Last Move Date
Central Bank Rate
Cut (bps) Rate (%)
US
Mar
-2020 100 0.25
UK
Mar
-2020 0 0.10
New Zealand
Mar
-2020 75 0.25
Australia
Mar
-2020 25 0.25
Canada
Mar
-2020 50 0.25
India
Mar
-2020 75 4.40
Country
Stimulus (US$ bn)
2019 GDP (US$
bn)
% of GDP
United States
2,200
21,200
10.4
Germany
171.6
4,040
4.5
Australia
62
1,450
4.3
UK
48.4
2,910
1.7
Italy
28
2,030
1.4
China
186
14,200
1.3
India
22.7
2,875
0.8
Japan
4.05
5,110
0.1
In order to counter the impact of the slowdown in global growth, central banks and governments
have announced monetary and fiscal measures even bigger than the ones announced during the
peak of the global financial crisis.
Global central banks have cut rates in a coordinated move While Governments have announced fiscal packages
Previous such falls have been good
opportunities to Invest
Market Corrections – A buying opportunity
Data for BSE Sensex
0
10,000
20,000
30,000
40,000
50,000
May/06
May/07
May/08
May/09
May/10
May/11
May/12
May/13
May/14
May/15
May/16
May/17
May/18
May/19
Global Market Sell off
(Correction 22%)
Upside : 95%
European Debt Crisis
(Correction 28%)
Upside : 157%Upside : 134%
Market Sell off
(Correction 29%)
Covid 19 Pandemic
(Correction 38%)
Every Correction in the market has been followed by an upside and has turned out to be a buying opportunity
Global Financial Crisis
(Correction 61%)
Upside : 83%
Market Corrections – A buying opportunity Contd..
Markets usually recover back from sharp corrections in a year or two
Dates
Correction
Upside needed to recover to
previous levels
Previous levels achieved on Time taken for recovery
May 06
- Jun 06 -29% 41% Oct-06 3 months 1 day
Jan 08
- Mar 09 -61% 156% Nov-10 1 Year 8 Months 5 days
Nov 10
- Dec 11 -28% 38% Oct-13 1 Year 10 Months 20 days
Mar 15
- Feb 16 -22% 29% Mar-17 1 Year 1 Months 9 days
Jan 20
- Mar 20 -38% 61% - -
Valuations are becoming attractive
On a P/BV ratio markets at same level as 2008
Nifty Trailing P/BV (Jan 2008 – Mar 2009) Nifty Trailing P/BV (Jan 2019 – Mar 2020)
1
2
3
4
5
6
7
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Nifty P/BV
2.2
1
2
3
4
5
Jan-19
Apr-19
Jul-19
Oct-19
Jan-20
Nifty P/BV
2.2
Data as of 30/03/2020
On a market cap to GDP basis markets as cheap as 2008
Data as of 30/03/2020
41
49
61
78
150
46
81
85
78
84
65
84
72
65
90
71
66
50
0
20
40
60
80
100
120
140
160
Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20
Market Cap to GDP (%)
Though on P/E basis markets still more expensive than 2008
Sensex Trailing P/E (Jan 2008 – Mar 2009) Sensex Trailing P/E (Jan 2019 – Mar 2020)
Data as of 30/03/2020
6.0
11.0
16.0
21.0
26.0
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Sensex PE
9.7
10.0
12.0
14.0
16.0
18.0
20.0
22.0
24.0
26.0
28.0
Jan-19
Apr-19
Jul-19
Oct-19
Jan-20
Sensex PE
15.3
However, P/E not ideal measure currently
Source: Bloomberg, RBI, Capitaline, Angel Broking
Corporate profit to GDP ratio at decade lows
4.8%
4.1%
4.5%
4.5%
4.2%
3.7%
3.7%
3.3%
2.9%
3.2%
2.7%
2.7%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
Jan/08
Jan/09
Jan/10
Jan/11
Jan/12
Jan/13
Jan/14
Jan/15
Jan/16
Jan/17
Jan/18
Jan/19
BSE 500 Profit (% of GDP)
Date
Reform/Event
28 May 2016
Insolvency & bankruptcy Code
08 Nov 2016
Demonetisation
01
May 2017 RERA
01
Jul 2017 GST
27 Sep 2018
IL&FS Default & NBFC Crisis
Major events during last few years that impacted earnings
Structural reforms and the NBFC crisis had an adverse impact on growth and profitability
Current low corporate profit to GDP is an aberration which will normalize over next 3-5 years
Pick up in growth, increase in profitability and P/E rerating will drive markets over next 3-5 years
India’s Macros are supportive
Fall in Crude prices is a big positive for India
Source: Bloomberg, Angel Broking
Brent price (USD/bbl)
India Imported 4.48 mn bpd of oil in 2019
10% fall in fuel price will have 40-50bps
direct impact on CPI
Every USD 10/bbl drop in crude price
would save USD 16.3bn of forex
Lower fuel price also increases disposable
income for consumers
0
10
20
30
40
50
60
70
80
90
100
Feb-15
Aug-15
Feb-16
Aug-16
Feb-17
Aug-17
Feb-18
Aug-18
Feb-19
Aug-19
Feb-20
85
23
Twin deficit is well under control as compared to 2013
Source: Bloomberg, RBI, Angel Broking
India Current account deficit (%) India Fiscal deficit (%)
6
6.5
4.9
5.8
4.8
4.6
4.1
3.9
3.5 3.5
3.4
3.8
3.5
2
2.5
3
3.5
4
4.5
5
5.5
6
6.5
7
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20E
FY21E
2.3
2.8 2.8
4.2
4.8
1.7
1.3
1.1
0.7
1.8
2.1
0.7
0
1
2
3
4
5
6
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20E
(%)
Which along with healthy Forex Reserves will prevent a BoP crisis
Short term external debt to Forex reserves very comfortableForex reserves almost at all time highs (US$ bn)
316.2
469.9
-
100.0
200.0
300.0
400.0
500.0
600.0
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Jan-20
India Forex reserve
34.5%
22.1%
25.4%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
Sep-12
Mar-13
Sep-13
Mar-14
Sep-14
Mar-15
Sep-15
Mar-16
Sep-16
Mar-17
Sep-17
Mar-18
Sep-18
Mar-19
Sep-19
St Ext Debt/Forex (%)
Source: Bloomberg, RBI, Angel Broking
RBI has announced various measures… has headroom for more
Rate cut: Repo rate cut by 75 BPS to 4.4%; reverse repo rate by 90 BPS to 4 % to encourage banks
to lend; CRR reduced by 100 bps from 4% to 3% of NDTL for one year.
Liquidity measures: RBI had injected liquidity of up to Rs 2.8 lakh cr (1.4 % of GDP) since the last
MPC meeting on Feb. 6, 2020. The RBI measures announced (TLTRO, CRR and MSF ) on Friday will
help inject liquidity further by Rs 3.7 lakh cr or 1.8 % of GDP.
Moratorium on term loans: All lenders are allowed to permit moratorium for a period of three
months on all types of term loans outstanding as on March 1, 2020.
Deferment of interest payments: Working capital borrowers can defer interest payments by three
months.
Regulatory relief: Deferment of capital conservation buffer’s (CCB) last tranche of 0.625% now
stands deferred by six months.
Source: Bloomberg, RBI,GOI, Angel Broking
Fiscal measures to compliment monetary measures
Source: Bloomberg, GOI, Angel Broking
The Indian Government has announced a fiscal package of Rs. 170,000 cr. (0.8% of GDP) which
is meant to benefit the poorest of the poor. Some of the key highlights of the package are:
Under the Pradhan Mantri Gareeb Kalyan Ann Yojna (PMGKY), at least 80 cr. poor people
will be provided an additional five kilos of rice/wheat per month.
8.69 cr. farmers will receive the first installment of Rs 2,000 in the first week of April
under the PM – KISSAN scheme
Wages under MNREGA will also be increased by Rs 2000 per worker on an average as
additional income to help daily wage labourers
BPL families will get free cylinders for three months under the Ujjawala scheme as well
For the welfare of building and construction workers, the central government has passed
orders to states to use funds worth Rs 31,000 crore to provide relief.
We believe that this could be the first among a series of measures announced by the
Government and we expect more stimulus measures announced by the Government
Where to put your money
Investing in current market environment
Proactive measures by Indian Govt should help preventing a widespread Covid 19 epidemic
However, global GDP impact could last longer as developed countries may take time to fully
roll back all restrictions
Some sectors of the global and domestic economy like aviation, entertainment, hotels, travel
& tourism, international trade, etc. could take longer time to fully recover
For instance, though the Chinese economy is gradually normalizing it is still away from
pre-crisis levels, esp. in abovementioned sectors
Therefore, given uncertainty over economic impact, we would recommend:
Investing in 3-4 tranches
Investing in very high quality businesses initially, which will out-perform markets
Avoid sectors which are more vulnerable to economic slowdown
Investing in current market environment (Contd…)
Sectors which will be adversely impacted due to economic shutdown and can be avoided
for the time being are:
Auto & Auto Ancillary
Aviation
Weaker Financials and NBFC
Hotels, tourism, multiplexes and retail
Metals & Commodities
However certain sections of the markets which are expected to out perform even during
tough times:
FMCG
Select Pharma stocks
Diagnostic and healthcare sectors
High Quality Equity Portfolio
FMCG
CMP (Rs.)
Mkt Cap in Cr
Colgate
-Palm. 1,253 34,079
Hind. Unilever
2,298 4,97,514
Nestle India
16,302 1,57,180
Procter & Gamble Hygiene
10,447 33,913
Other Consumer Goods
Asian Paints
1,667 159,869
Bata India
1,231 15,824
Hawkins Cookers
3,884 2,054
Healthcare &
Pharma
Dr Lal Pathlabs
1,401 11,680
Ipca Labs.
1,388 17,535
Others
Avenue
Supermart 2,201 1,42,556
Bharti
Airtel 441 2,40,372
Note: We recommend keeping cash
up to 25-30% of your desired
investment amount handy for
investing in more stocks as
economic clarity emerges
CMP as of closing on 31/03/2020
ARQ Recommended Mutual Funds
Category
Scheme
Sub
- Category
Equity Funds
1
Axis
Bluechip Fund
Large Cap
2
Canara
Robeco Bluechip Equity
Large Cap
3
Kotak Standard Multicap
Multi Cap
4
DSP Equity
Multi Cap
5
Axis Midcap
Mid Cap
Balanced Funds
1
SBI Equity Hybrid Fund
Aggressive Allocation
2
Canara
Robeco Equity Hybrid
Aggressive Allocation
3
ICICI
Pru Regular Savings
Conservative Allocation
4
Kotak Debt Hybrid
Conservative Allocation
Debt Funds
1
LIC MF Banking and PSU Debt
Banking and PSU Fund
2
IDFC Ultra Short Term
Ultra Short Duration fund
3
Aditya BSL Savings
Ultra Short Duration Fund
4
Axis Short Term
Short Duration Fund
Basic Principles for Long-Term Investing Success
Invest monthly rather than lumpsum.
Catching the bottom is practically impossible. Investing at regular intervals (ideally
Monthly) averages your cost at various market levels and maximises returns
Invest for at least 3 years. Ideally 5-10 years.
Invest surplus money only - Any surplus that you don’t expect to use for any essential
expenses over the next 3 years should be considered for equity investments
Invest in a diversified portfolio.
Around 15-20 stocks which are spread across sectors compared to investing in a
concentrated portfolio with investment in fewer stocks
Thank You