Stock Market Newsletter – March 2020

Thank God, March ended finally…. A forgettable month…A regrettable year…. market cap erosion not seen in more than a decade…. These were the undesirable& unfortunate phrases, used by many investors, financial advisers and fund managers, to describe the month of Mar 2020, which will be etched in the memory for a long time to come. In march alone, the equity market capitalization of BSE listed companies lost a mammoth Rs. 33.38 lakh crore, with only 8 trading sessions being positive out of a total of 21 trading days.

The combined market capitalization of 873 family owned companies was down by 26.3% on a year on year basis losing Rs. 22 lakh crores, with AV Birla group losing 41.4%, followed by Bajaj Group at 30.8%, while RK Damani’s flagship company DMart saw a 55.7% rise.

The benchmark indices witnessed some of the steepest intraday falls in this month – 695 pts on March 9th, 758 points on Mar 16th, 950 points on Mar 12th, 1035 points on March 13th and so on…a very scary scenario for an unseasoned or even an experienced investor. Overall, for the Jan – Mar quarter, Nifty50 declined by 29.3%, witnessing the sharpest quarterly fall since the quarter of Jun 1992, when it fell by 32.2%.

For the year as a whole, Nifty50 fell by ~26% opening FY 20 at 11623.9 on Apr 1 and closing the year at 8,597.75, a loss of 3,026.15 pts. Similarly, the other major benchmark, Sensex30 closed the year at 29,468.49, a loss of 9,204.42 pts (23.80%). Similarly, Nifty Midcap 100 was down by 35.90%, Nifty Small cap 100 by 46.13% and Nifty Bank by 37.08%.

The index with the worst performance of 2019-20 was Nifty PSU Bank Index, witnessing a fall of 60.33%, accompanied by Nifty Media at 58.35%. None were spared and the best performing index was Nifty FMCG, which lost only 9.9%, followed by Nifty Consumption at 16.05%.

The performance of various Nifty indices:

Only 5 stocks out of Nifty50 index ended the year with positive returns. Consumption/FMCG stocks – Nestle, Hindustan Unilever, Asian Paints were among the top 3 gainers, while the worst of the wealth destroyers included IndusInd Bank, Zee Entertainment, Vedanta followed by Tata Motors.

For March, FIIs sold a net of ~ Rs. 66,000 crores and a total of Rs. 90,000 crores for the year in equities, while DIIs invested a net of Rs. 55,600 crores in March and a total of Rs. 1.29 lakh crores in equities for the whole of FY20.

Followed by many investors around the world, a good measure of over or under valuation of a market is market capitalization to GDP ratio. Valuation of Indian indices are below their long-term averages.

This wealth destruction was not restricted to Indian stock markets alone. Similar situation was witnessed across global markets with Philippine, Indonesia and Thailand stock markets witnessing worst falls in many years. The Philippine stock market had a two-day shutdown and when it opened for trading on the third day, the index fell by 24%, the worst in 8 years.

The Dow Jones index declined by about 28% between February 11 and March 12, 2020, driven by the Coronavirus pandemic and turmoil in the crude oil markets. Crude oil prices tanked over 30%on Mar 9th alone, due to failed talks between Saudi Arabia led OPEC and Russia. This was the result of Russia’s unacceptance to curb crude oil production, in the wake of unstable oil markets affected by Corona Virus pandemic.

Coming to Corona Virus pandemic, its spread increased to more than 200 countries currently, creating disruptions in medical supply chains and shutting down of many countries. G-20 nations indicated their willingness to inject US$5trn stimulus into the global economy with fiscal and economic measures to counter the social, economic and financial impacts of the pandemic.

In India too, RBI undertook measures to infuse liquidity worth Rs.3.74 lakh crore, while the central government announced Rs. 1.7 lakh crore package to bring relief to the urban and rural poor, migrant workers and widowed women, designated at the bottom of the pyramid. The Monetary Policy Committee conducted an advanced policy meeting and voted (4-2 majority) to cut the repo rate by 75 basis points, taking the repo rate down from 5.15% to 4.4%. In addition, the reverse repo rate was also cut by 90 basis points, taking it down to 4%. This imbalanced cut was done to support lending by banks, considering the current operating environment.

RBI Governor also announced a 100-basis point cut in Cash Reserve Ratio (CRR) for all banks, for a period of 1 yr. This is expected to release Rs. 1.37 lakh crore across the banking system. He also allowed a moratorium of 3 months on payment of instalments for term loans outstanding as on March 1, 2020, while allowing deferment of 3 months on payment of interest with respect to working capital facilities. Slowdown in Indian economy is taken for granted, as expressed by Moody’s with a much optimistic 2.5% GDP growth projection for FY21.

After RBI policy decisions, the fixed deposit rates fell to ~5% and ~6.15% for 3 month and 1-year tenures respectively. Based on these changes, central government decided to cut the rates on small savings schemes and following are the applicable rates for Quarter 1 of FY21.

With central and state governments completely focused on addressing the Corona Virus pandemic through lock downs, testing and arranging for medical supplies and essential commodities on a pan India basis, emphasis on addressing the current economic issues could be limited and is understandable though not desirable.

At this time, one more week remains into the lockdown announced earlier and the expectations of a 2-week extension are high and appropriate too. Safeguarding the health of all citizens is the primary focus area of the state and central machinery. As Ralph Waldo Emerson said “The first wealth is Health”. Here’s to better health and stable stock markets in April.