June quarter GDP contraction was quite serious
across the globe on account of ‘Stay at Home’ strategy adopted by most governments.
India was amongst the worst hit with 23.9% contraction in GDP. Unfortunately,
the population density and the sheer size of population resulted in India
having the 2nd highest cases in the world after USA.
However, with economies gradually opening up,
recent data suggest stability is coming back in various sectors of the economy
with many of the auto majors showing Y-o-Y growth in August, construction
activity now coming back to almost pre-COVID level, credit card spends
witnessing Y-o-Y growth as per August month data, rural dependent sectors
showing higher growth month-on-month on the back of better monsoon and higher
Global Stock Markets
Despite the pandemic, the global stock markets
(especially the US market) continue to be on steroids driven mainly by excess
liquidity as well as lack of investment opportunities.
SEBI on September 11, 2020 released a direction for multicap schemes of mutual fund for investing minimum 25% of funds in each marketcap i.e. Large, Mid and Small. Presently, there is around 1.5 Lakh crores of assets under multicap category of mutual fund and majority of allocation is towards largecap and only ~5% funds are invested in smallcaps.
“This is definitely a welcome move, as good companies beyond 251st rank, will see new Rs 25,000 crore (Rs 10,000 crore already invested in smallcap companies) by January 2021. New SEBI guidelines will give a free hand to fund manager of multi-cap MF schemes (same size as largecap schemes-quite favourite amongst investors) to invest in good companies in smallcap basket. Also, the smallcap basket, ignored owing to the focus on top 250 companies, will gain attention and will support the current broad-based rally of 2020, compared to the polarised market of the past two years. The view is shared by Amit Doshi, Investment Director with moneycontrol.com.
The year 2020 has been more than what we bargained for. From a pandemic called COVID-19 hitting almost the entire world, to the hardships caused by the lockdown to several businesses, to border tensions, and fears of a slump in corporate profitability, to cancellation and/or postponement of major sporting and social events, this has been quite a year so far.
The stock market in India has seen quite a roller-coaster ride. The S&P BSE Sensitive Index had fallen from a high of 42,273.9 in January 2020 to 25,638.9 in March 2020 (a fall of over 39%). This has been one of the sharpest falls in India’s stock market ever. However, the Index has staged a decent recovery, and at the end of June 2020, has risen to 34,915.8, which is a rise of 36% from the bottom of the year.
Global economic growth is forecast to edge up to 2.5% in 2020 as investment and trade gradually recover from last year’s significant weakness but downward risks persist with advanced economies growth slipping to 1.4% whereas emerging and developing economies expected to grow at 4.1%.
Corona Virus: There will be an impact on global trades considering recent incidences of effected cases of virus in countries other than China and hence broadly global markets will remain volatile including India.
There are many concepts and thoughts through which one can see commodity businesses. They are termed as cyclical, low PE deserving companies and generally have restricted weightage in one’s portfolio.
Right Definition: We believe that any business or trade where goods are sold without any value addition or without any differentiation can be referred as commodity businesses. Here word “Value addition” has vital meaning and impact. Generally, metals, cement and agro stocks are considered as commodity business. We believe if company has capacity to resist to volatility in base commodity price due to scale, stock or other natural advantage it can be considered as different company from pure commodity play.