“Whenever I see a stock market explode, six to twelve months later, you are in a full-blown recovery” – Stanley Druckenmiller.
Doesn’t seem that Stanley Druckenmiller was wrong. It took 205 days for Nifty 50 index to move from its lows of March to reach 12,000 level by October. That’s an impressive up move of 4,400 points, a whopping 58.6% return, as nations continue to counter the negative effects of corona virus pandemic on their respective economies.
Government of India’s Department of Economic Affairs in its monthly economic review highlights that the number of confirmed cases of COVID-19 globally now exceeds 4.6 crore with more than 12 lakh deaths. There has been a resurgence of new cases with daily cases exceeding 4 lakh per day, with particular concentration in United States, India, France, UK, Italy and Spain. After having ‘flattened the curve’ in May, many European countries are witnessing a second wave of infections forcing re- imposition of public health measures.
For India, growth in active cases has consistently stayed in negative territory since 3rd October and falling at the rate of 1.4%. As on 31st October, the total confirmed cases in India have crossed 80 lakh – India took 169 days to reach its first 10 lakh cases, and 21, 16, 13, 11, 12, 13 and 18 days to reach its subsequent 10 lakh cases. The recovery rate improved to above 90% as on 31st October vis-à-vis 83.3% as on 30th September. Case fatality rate continued to decline to 1.48% by October end, as compared to 1.57% by end of September.
While the outlook seems encouraging and restrictions on economic activity continue to be relaxed in a phased manner, it is the responsibility of all citizens to continue with the precautions and follow the stated guidelines. Commercial availability of the corona virus vaccine is still some time away. Responsibility towards health has no equal and should be the priority of all citizens.
In October, stock markets did reflect the health concerns of their respective countries. The Hong Kong stock market took the top position of the best performing index, followed by Philippine Stock Exchange and Shenzhen Stock Exchange. Among the worst performers was the German Benchmark, accompanied by Polish and Russian indices.
Major Indian indices were among the top performers, with bouts of volatility impacting the overall returns for the month. While Nifty 50 and Sensex 30 returned 3.5% and 4% respectively, the Nifty Bank index, after almost 6 months of underperformance, sprang to life, returning a stunning 11.5% for the month of October.
Nifty realty and services followed with 8% returns each, while IT and metals returned 4.9% and 4.5% respectively. Media, pharma, auto, FMCG, energy as well as the broader indices like small and midcaps delivered mildly negative to flattish returns.
Among Nifty 50 stocks, Kotak Mahindra Bank led from the front, with 22% return, followed by Axis Bank at 16% and Tech Mahindra at 14%. The losers list was led by HDFC Life Insurance at -11%, joined by Wipro at -9.9% and Britannia at -8.5%.
With the results season off to a start, many companies declared results supporting their recent outperformance, in turn leading to profit booking across some counters like Britannia, Wipro, Dr. Reddys etc.
After pulling out Rs.11,410 crores from the equity cash market segment in September, FIIs were back in force with a Rs.14,500 crore investment while DIIs continue to sulk with an outflow of Rs.17,310 crore this month, following a meager investment last month.
BSE equity market capitalization for the month rose by Rs.2,67,982 crore, much better than the Rs.147,965 crore witnessed in September. High volatility prevailed in the second half of the month, which saw a market capitalization erosion of RS.7.20 lakh crore in just 4 trading sessions.
USD-INR saw a change with the rupee depreciating against the dollar from 73.57 at the beginning of the month to end at 74.55, a fall of 1.33%.
Foreign exchange reserves for the 4 weeks since 25th September ended at US$560.5 billion, increasing US$18.5 billion, marking an appreciable jump.
Commodities had a mixed month with natural gas raising 39% while precious metals like gold, silver, platinum etc witnessed correction in prices. Zinc, Nickel, Aluminum, Copper and Lead were the other notable gainers. Crude prices fell due to a possible continuation of output reduction due to lower demand and higher inventory.
Orange juice seems to be having a good year, probably due to the immunity boosting properties as a counter to corona virus infections.
In Rupee terms, gold price per 10 grams moved from Rs.50.325 last month to Rs. 50,645 as Nifty 50 moved from 11,247 to 11642. Gold continues to under perform due to return of economic activity and investors opting for equities as an asset class.
While this wraps at the stock market and commodities in general, lets take a look at the Indian economy and the latest situation across sectors. Economic activity surged during the month, with high frequency indicators indicating an uptick in general. Healthy Kharif output, power consumption, rail freight, auto sales, vehicle registrations, highway toll collections, e-way bills, rebound in GST collections (greater than Rs. 1 lakh crore) and record digital transactions are a reflection of improved activity. Manufacturing Purchasing Managers’ Index rose from 56.8 in September to 58.9 in October. Analysts believe that the festive season currently underway can enhance prospects of a speedy economic normalization.
World over, economies are witnessing a ‘V’ shaped recovery and reporting better than expected GDP growth numbers. All major economies like US, China, UK, Japan are reporting higher activity in services as well as manufacturing, with gradual relaxation of restrictions.
However, in recent weeks, a second wave of corona virus infections are providing reasons for reimposition of lockdowns. Many western and European countries have reimpose restriction on movement of people, goods and services, which would dampen fourth quarter GDP growth of their respective economies.
In India, inflation continues to remain at elevated levels, beyond the 7% mark, owing to high food prices. Since December 2019, inflation has averaged above 6% due to supply chain disruptions.
The Monetary Policy Committee (MPC) constituted to manage inflation hasn’t been effective and at the end of their 1-year term, has been reconstituted with new members in the panel. While RBI and MPC prefer growth at this point, inflation still has to be brought down to the prescribed levels by addressing supply side issues.
On the monsoon front, the country received 109% rainfall of the Long Period Average (LPA) in the season this year, with 86% of the sub-divisions receiving normal and above normal rainfall. This augurs well for upcoming Rabi sowing and rural demand. The first advance estimates (AE) of production of major kharif crops for 2020-21 placed food grains production at 1,445.2 lakh tonnes, 0.8% higher than last year.
Automotive sector saw better times, with increased dealer level inventory, due to expectations of higher demand during festive season and restocking of newer models. Vehicle registration data showed marked improvement but OEMs aren’t sure of the demand continuation beyond the festive season.
Industrial production is showing signs of recovery with year-on-year (YoY) growth in IIP showing a smaller contraction in August at 8.0% as compared to 10.8% in July. However, it contracted on a sequential basis by 1.3% as compared to July, 2020.
As per department of commerce, Ministry of Commerce and Industry, after a strong rebound in September, India’s merchandise exports at USD 24.8 billion contracted by 5.4% in October 2020 as against USD 26.2 billion in October 2019, primarily driven by weak oil exports. India’s merchandise imports in October 2020 stood at USD 33.6 billion as against USD 38.0 billion in October 2019, with YoY contraction easing to 11.6% from 19.6% in September 2020. This resulted in a higher merchandise trade deficit of USD 8.8 billion, as against the deficit of USD 11.8 billion in October 2019.
Rice, organic and inorganic chemicals saw an increase in exports, with pearl and precious stones as the most imported items. Among the declining exports, petroleum products saw a considerable change, while imports of electrical machinery and transport equipment were notable items.
India’s overall trade balance (Merchandise and Services combined) is estimated to be in surplus at US $ 17.7 billion in 2020- 21 (April-September), with overall exports and imports estimated to be US$ 221.9 billion and US$ 204.1 billion respectively.
Another highlight of the month was the announcement of quarterly results by Indian companies. On an overall basis, many sectors performed better than analyst expectations, giving opportunities to rerate some of the companies. Many sectors including airline, hotel and hospitality industries need more time to get back to normalcy. A look at the top 25 companies (by market cap) in totality shows that the recovery in Q2FY21 has been much better than expected, in comparison on a quarter on quarter as well as on a year on year basis. But, barring notable exceptions like Bharti Airtel, Sun Pharma and banks – ICICI, SBI, Axis – the financial performance was average.
A quick look at the top 100 companies and their financial performance on a YoY and QoQ basis.
What does November hold for Indian stock markets?
The US presidential election, considered to be a major event for the markets, is turning out to be a non-event, at least till now. As I write this newsletter, the counting is still in progress and final announcement is awaited. But stock markets seem to have started out on a strong foot already and the trends of previous years might not provide any useful trends to a trader or investing.
Nifty is currently within shouting distance of its previous all-time high, and there is a strong possibility of the index making fresh all-time highs in this month. However, that doesn’t call for throwing caution to the wind and forgetting basic principles of trading and investing.
In recent times, post US presidential elections, the returns have been mixed over the next 3 months. Sometimes positive and sometimes, negative. Stock market participants are expected to exercise caution and do better.
Stay healthy and stay safe.
Happy Trading & Investing!