India is staring at its firstly slump in 40 times. Despite the stock market appearing upbeat, economists are rewriting expansion judgments downwards regularly. “Our current judgment for 2020 -2 1 is -2. 1 %, expecting the lockdown will not be extended beyond 31 May. If it is extended, we will revise estimates, ” says Sunil Sinha, Principal Economist, India Ratings. He is not alone. Crisil has also downgraded its growing forecast for 2020 -2 1. “Due to the Covid pandemic, the first three months of 2020 -2 1 will suffer a breathtaking 25% reduction and despite some improvement in the second half, the Indian economy is expected to end the financial year with a 5% contraction, ” says Dharmakirti Joshi, Chief Economist, Crisil. Unlike previous recessions–India has looked four since Independence–agriculture is expected to report normal raise this time. The overall numbers will be dragged down by the services sector and manufactures like manufacturing, mining, etc. One of the major factors contributing to the sorry state of affairs has been the prolonged lockdown. “Industry and works would have restarted if the lockdown was withdrawn after the first stage. However, the massive alter movement of labourers is changing the picture now. Due to this, financial pleasure will not be back at normal levels anytime soon, ” says Sinha. The world-wide sort of the pandemic has added to the woes. “The global dislocation has upended whatever opportunities India had on domestic exports breast, ” says Joshi. 1. Blow at a bad timeWhile much of their own problems in the economy can be traced to Covid, the picture was not rosy to start with. India’s financial expansion affected a decade low-grade in October-December 2019 — much before Covid and the lockdown happened.Compared to the same period last year, industrial output contracted by 16.7% in March. As the lockdown came into effect only in the second half of March, negative performances of this magnitude can’t be attributed to the pandemic. GDP precipitated to a decade low-grade of 3.1% in the fourth quarter. India’s core sector output contracted 38.1% in April, the worst performance since 2005. This does not bode well for firstly quarter numbers.India Inc was striving even during the January-March period and its aggregate revenues and net profit descended 6.36% and 9.95% respectively y-o-y( accompany plot ). Most areas reported coming net profits in the fourth quarter( see table ). Agrochemicals and cement were among the handful that bucked current trends. While last year’s good monsoon and increased implant cured agrochemical corporations, dropped in input payments facilitated plaster firms. Various areas like construction, real estate and telecom, slid from profit to losses.Already poor economy becoming weakerInstead of slower raise, economy is expected to contract in next two fourths. 7610388 8Contraction in industrial production worse than what it was during 2009 crisisThe crowds will become worse as the lockdown halted all act April onwards. 7610389 4Compiled by ETIG DatabaseQ4 lists search grisly, more bad news likelyDespite the tax chipped benefit, net profits show fall of 9.95% so far. 7610390 1* Based on the research results declared by 290 firms so far.Compiled by ETIG DatabaseQ4 net profits slump in most sectorsOnly agrochemicals and cement managed to horse the trend. 7610391 2Note: Prices in bracket are number of companies that have declared results.Compiled by ETIG Database2. Earnings shockCorporate profitability remains an area of concern with the numbers expected to be bad in 2020 -2 1 as well. This is because the first quarter is gonna be a washout due to the lockdown and there is no clarity on how things will shape up in the second quarter. “Earnings swelling in 2020 -2 1 will be really bad. Even if the lockdown travels, it will make some time before things come back to normal, ” says Raamdeo Agrawal, Joint MD and Co-Founder, Motilal Oswal Financial Services.So how much would the aggregate net profits fall by? “Nifty earnings are expected to contract by around 20% during the first quarter and 5% -7% in the second quarter, ” says Shailendra Kumar, CIO, Narnolia Financial Advisors. “Aggregate earnings in 2020 -2 1 may fall by high single to low doubled digits. This is on the assumption that Covid-1 9 subjects will peak in June-July. If there are second or third brandishes as feared, the earnings reduction will get extended to include 2021 -2 2 as well, ” predicts Pankaj Pandey, Head of Research, ICICI Direct. The high-pitched base impact, triggered by corporate duty cut in 2019 -2 0, will also impact earnings. “Though the lockdown wallop was merely for eight dates in March, the fourth fourth results are not immense. Lack of corporate duty trimmed benefit will be another reason why 2020 -2 1 earnings rise will be negative, ” says Rajat Sharma, CEO, Sana Securities.However, it may not be all doom and gloomines. “Recent increase in power demand shows that some financial tasks are back, are to be found in dark-green zones, and that is positive news, ” says Agrawal. “Most storages are empty now because they are not getting enough makes due to the lockdown and logistic issues and restocking by pushers before Diwali will propagandize sales at company levels, ” says Kumar.One can’t decide on market investments based on fundamentals alone. While fundamentals are expected to be weak in 2020 -2 1, the stock market may remain strong in the short term due to increased liquidity. Here is what you should do as potential investors. 3. Ignore the left out feeling Along with world-wide indices, the Sensex has also rallied 25% from the March closing bottom of 25,981, primarily on hopes of further acts by governments and central bankers across the globe. Feeling left out, various investors are ready to jump in now. Nonetheless, experts say this is not the remedy policy. “When things is turning, the market will give fairly opportunities to get in. Investors should avoid the fear of missing out and wait for openings, ” says Jimeet Modi, CEO, Samco Securities.While the broader economy is heading towards a receding, stock exchange valuations are still high-pitched, another reason why professionals are asking you to be cautious and wait for further improvements. “The Nifty has precipitated from its peak, but it still remains overvalued. Though liquidity can keep the market strong in the short-term, world will catch up eventually. The Nifty may go back to 7,500 ranks in the next 6-8 months, ” says Sharma. Amit Jain, CEO& Co-Founder, Ashika Wealth Advisors acquiesces. “Due to expected fall in EPS, the measured PE ratio will go up in the coming one-quarters. Busines sentimentality will also take a hit later because the health crisis is turning into a financial crisis now and soon, this will turn into a geopolitical crisis. Wait till October for better opportunity, ” he says.Analysts have trimmed EPS estimates for 2020 -2 1This fall is expected to gain momentum formerly all companies say reactions. 7610392 1Source: Bloomberg; Compiled by ETIG DatabaseSensex PE still above 20 -year averageNeed to be cautious because PE may go up in future due to fall in earnings. 7610392 74. Sell on ralliesWhile poor fundamentals drag world markets down, the same is supported by liquidity doses by global governments and central bankers. That implies the market may go up further in the short term. So, the best strategy right now is to utilise the dominating bullishness. “We are in a sell on rally phase and investors can lighten their equity quantity if the market continues to move up, ” says Modi. 5. Moderate fin sector numbersSince RBI’s recent assess are helpful in banks to supress their non-performing credits( NPLs ), the reported revenues from the sector are likely to be higher than the real profits. For example, increase of postponement by another 3 months planneds fewer’ recognised’ defaults by banks and NBFCs during the first and second quarter of 2020 -2 1. RBI also granted banks to convert interest on working capital lends into expression lends repayable by March 2021. In addition to helping report higher credit growth–just diary introduction , not actual brand-new loans–this will likewise cure banks propagandize this default to the next financial year. 6. Look beyond P& L accountAvoiding small companies with shaky balance sheets and affixing to big companies with strong balance sheets is likely to be the next approach. “In crisis situations like this, there will be mortality in the corporate macrocosm as various weak fellowships will die.Since big and strong fellowships will become bigger and stronger, investors should bet on them, ” says Agrawal. The expected earnings volatility is another reason why experts are asking you to concentrate on balance sheet strength. “With this kind of earnings volatility, earnings-based valuation won’t work. It is better to look at the balance sheet. The firms with strong sector balance sheets can subsist the confusion, ” says Pandey. Modi agrees. “Concentrate on companies that have the balance sheet strength to survive 2-3 years of anguish, ” he says. In addition to cash on records, investors should also look at cash flows. 7. Shun cash-strapped firmsWe all know indebtednes is a bad word now and it is prudent to avoid companies with high-pitched pays or those expected to raise debt in future. However, investors should also forestall corporations that need to raise capital in the form of equities in the immediate future. “In the current depressed marketplace, dilution will be high because business won’t be able to get the right multiple. For example, banks promoting equity below journal price is bad for existing investors, ” says Pandey. 8. Stick with promising sectorsA strategy that will work in the short-term is to go with spheres that are expected to do well in 2020 -2 1. For example, IT and telecommunications may do well because the entire world is becoming more digitised thanks to the age of working from dwelling. As the pandemic is a health crisis, pharmaceutical is an obvious sphere that is expected to do well. “Pharma sector is also getting a lot of funding now, ” says Sharma. Since people can’t eschewed basic uptake, FMCG is another sector that will not be impacted poorly in this turmoil. The affect of lockdown is much smaller in rural areas and therefore, agricultural products and pertained sectors are also expected to do well in 2020 -2 1.9. Look at market shareYou may be allured to be addressed areas who ought to do severely because of falling share tolls. Anyone using this strategy should search the quarterly numbers for market share gain and not headline earnings. Profitability will fall because the entire market will shrink. “The companies that can gain market share in situations like this will be the ones that will be able to report good counts in future years, ” says Kumar. However, one should not ignore valuations. Let us take the example of the NBFC sector, which has been in turmoil for the last few years. Strong NBFCs have increased their money contains to survive this phase( realize map ). Strong NBFCs are increasing cash in their balance sheets While looking for stability, investors should consider valuation as well. 7610393 9Source: Motilal Oswal reportThere is no doubt that a company like Bajaj Finance will exist the disarray in the consumer finance space use its balance sheet strength. However, is its high-pitched valuation apologized? “Bajaj Finance’s high-pitched valuation is not justified because people are losing jobs and they may not be able to pay back their credits taken for consumer durables, ” says Sharma.
Read more: economictimes.indiatimes.com
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