The RBI fired another salvo cutting interest rates by 40 bps, cutting it by 250bps since Feb 2019. The RBI had a very pessimistic view of the economy, saying it will be in negative territory and also extended the earlier concessions by 3 more months. The SEBI has asked companies to tell investors what impact COVID-19 is having on their businesses, which is eagerly awaited.
Clearly, the intent is to stimulate businesses and people to borrow and spend more. However, this hasn't happened as non-food credit growth was just 7.2% in 2019, the slowest in more than a decade. Also, Banks are unwilling to lend and are parking as much as Rs.8.5L Crores with RBI! When the credit growth actually picks up, lower interest rates would help. But we have to reach that pick-up stage first. Even before the COVID-19 outbreak, the Indian economy was slowing and with unutilized capacity and leveraged balance sheets, many businesses aren't going to borrow anytime soon. The uncertainty from the pandemic has only added to delayed investments.
As economies globally ease lockdowns, the flash Composite PMI for some of the larger developed economies show that the pace of contraction has slowed this month. There are no flash PMIs for India and we have to wait for 10 more days to see how we have performed. While the RBI has done its best, the lack of demand boosting measures in the govt's economic package is not helping the Indian markets. With the easing of lockdown, the economy should slowly limp back on its feet but fears over unemployment remain.
However, global markets have remained remarkably resilient thanks to the fiscal measures taken by the various banks and governments. The enclosed chart of Nasdaq shows how it has bounced 40% from its low in March and is just 5% away from its all-time high!! Many of its constituents including stocks like AMZN & FB are close to its all-time high.
Pandemics do cause damages to many businesses but clearly provides opportunities to some! How else can your favourite video conferencing Zoom's valuation be greater than the top airlines combined??
Our job as investors is NOT to time the market but find out funds/businesses that will make money in the new world while remaining aligned with our goals. Stay invested, Stay safe!
Source: The Mint, Moneycontrol, VisualCapitalist, Investing.com & TOI