The COVID-19 driven lockdown came in as if we were all hitting the ground in a time of active artillery firing in a war zone. War it was, indeed and still is. Many lives lost, many still ailing and almost all of the humankind affected emotionally with deep-rooted psychological impact, whether visible or not. The same has been the case for almost all businesses with very few exceptions there. With respect to work-life, several kinds of new-normal have been formed in the backdrop of multiple business casualties and the need to survive in the most unthinkable situation in a century; the struggle just got real.

But now is a different time, similar to a dawn post the darkest night of war. A time when we all are trying to recover and get back up. The gradual process of unlocking has been a rather slow but promising strategy that has started to show signs of improvement across most sectors with innovations enabling the ease of living and the hope to be able to see the brightest sunshine upon us.

We have seen considerable improvement from the lows experienced during Apr-May’20. With the economic activities picking up since the Unlock 1.0, India’s unemployment rate has seen a sharp decline from a high of 23.52 percent in Apr’20 to 8.05 percent (30 Day Average) as of 28 Aug’20, marking an improvement of a whopping 1,547bps in a matter of 5 months.

Starting from Apr-20 till 28 Aug’20, the domestic equity market indicative S&P CNX Nifty 50 Index also gained about 36 percent in absolute terms, supported by a massive over Rs 83,600 crore worth of FPI/FII inflows (despite profit booking worth over Rs 18,500 crore by DIIs).

Another interesting indication came in the form of GST collections in Jun’20 which stood at Rs 90,917 crore (~90 percent of the revenues in the same month last year) inching closer to the Jan’20 level of Rs 1.10 lakh crore. This was a considerable improvement from the Apr-May’20 levels of Rs 32,294 crore and Rs 62,009 crore, respectively.

The CPI inflation also declined from 7.2 percent in Apr’20 to 6.9 percent in Jul’20. (The government had not released the headline retail inflation data in Apr-May’20)

While the domestic economy may still witness a de-growth this fiscal, it seems to have the ammunition ready for a robust few years ahead. However, this may take longer than expected by the financial markets which are currently trading at high multiples of 32.92x PE for the S&P CNX Nifty50 Index, indicating over optimism at this juncture compared to an average range of ~26-28x PE for the trailing 12 months.

Coming to the most critical catalyst which would play a life-changing role – the COVID-19 vaccine. Despite aspirations to speed up the research and get the vaccine on the shelves as soon as possible, experts of the pharma industry estimate a timeline of not less than 6-8 months for the same. Considering this, the normalcy as we expect to achieve is in a bit of a distant future (as against the urgency).

In such a scenario, it becomes prudent for all investors to be very watchful of their investments and not get carried away by the FOMO (fear-of-missing-out) with equities richly priced and bond yields at +6 percent levels, one must stay a tad more concentrated in safer investments and may also consider some profit booking with a view to re-enter once the financial markets rationalize.

While the correction in the equity markets also comes with some uncertainties and may be difficult to predict, it doesn’t seem a great time now to add fresh money into the markets. Hence, it would be ideal to watch out for a few strong and sustainable indicators from hereon.

-By Raveendra Balivada, Head-Investment Advisers, HDFC Securities

First Published:Aug 31, 2020 3:43 PM IST