An orderly market
rally is spreading out to encompass stocks of different sizes, sectors and ages
A striking
feature of the record-breaking market rally is its democratic characteristic. There
is order instead of chaos. Unlike in the past bull runs, when buying would be
concentrated in frontline stocks in some flavor-of-the- season sectors,
investors are spreading their benevolence across the board. Doomsday
predictors, true to form, are not impressed. They are out with their usual
warnings of bubbles as viewed from different angles such as the market
cap-to-GDP ratio, historic valuations and divergence between economic health
and trading optimism. Expressions of pessimism amid the giddy euphoria can be
irritating. The toll taken by the pandemic has no like-to-like comparison.
There was no roadmap to tackle the emergency. The plunge in consumer confidence
was not due to runaway asset prices. The fear of an uncertain future without
any timeline for a concrete resolution cannot be on par with seven-year cycles
of boom and busts. Pumping cash had to be accompanied by progress in containing
the outbreak. Supplementing monetary agencies’ determination to keep interest
rates zero and buy bonds, which were effective in pulling out the economy from
the 2008 mortgage blowout, is the realization by law makers to periodically
come out with newer editions of fiscal stimuli. Instead of the
one-size-fits-all solution of cheap money and tax concessions that is dusted
and brought out during a downturn, the Reserve Bank of India and the clever
Modi government have directed resources to the vulnerable, with the potential
to become GDP multipliers.
Matching the
large-caps’ rebound from the bottom initially, side counters raced past the
leaders by the middle of July. Small scrips’ returns more than doubled as
against the giants recovering three-fourths and the in-betweens about 85% by
early December from the March lows. The mid- and lower-rung players climbed
back to growth in 2020 by the third week of October. The mainline indicator
managed to swim to the shore the next month. Due to preference for high float
and index constituents, it is unlikely entrepreneur-driven entities are a craze
among overseas fund managers, who have been net buyers of equities for six of
the seven months since April. With
domestic institutions’ shopping restricted to May, reports of bumper profit and
enrolments by brokers in the last two quarters point to retail investors
occupying vacant spots in the trading ring. The resolves of central banks and
governments to support the weak till the pandemic is capped is likely to have
emboldened risk-averse individual participants in believing the diminishing
downside of volatile bets. Besides profit-booking in big players trickling down
the pecking order, percolation is also from segments that stood to benefit from
the disruption to those, such as consumption and infrastructure, devastated
from the stoppage of cash flow due to lockdowns but eager to roar back on
unlocking. The Nifty Pharma index’s January-to-date gains had soared from 14%
early May to 50% after five months as the focus on treatment for covid-19
patients shifted to developing candidates to prevent infections. After a slow
start, the Nifty IT index had galloped 42% by the beginning of December as
businesses rushed to transit into the digital era for contactless transactions.
If drug makers got discounting on actual
sales, tech solutions providers’ wealth creation was due to revenue visibility
on the premise working from remote locations will persist in some form. The
Nifty Energy index’s tanking 39% in the calendar year till early April and
eventually bouncing back 6% so far pivoted on the prospect of normalcy in the
medium term. The Nifty Auto index’ turnaround, from being a loser after the
urban population was confined to work from home to advancing 13% as the year
was setting, factored the present and future. Sales of low-end cars and
two-wheelers spurred by the desire for personal mobility and the expected
expansion of productivity from the December quarter is tipped to lift
commercial vehicles. The dispersion of attention is not only between companies
of varying shapes and sectors. Legacy and emerging plays are attracting
eyeballs simultaneously. If the IPO of new-age Happiest Minds Technologies was
subscribed 151 times, that of veteran Mazagon Dock Shipbuilders received bids
157 times, traditional specialty chemical manufacturer Chemcon 147 times and
hard-hit consumption play Burger King 150 times the size. It is becoming clear
that no industry is going to get shunned. Big and small enterprises, value and
growth picks, and innovative and proven technologies will coexist. Policy
assistance will be a mix of loose and calibrated measures.
-Mohan Sule
No comments:
Post a Comment