Market    View    :    Be    CAUTIOUSLY    Optimistic

• Quoting Berkshire Hathaway AGM for 2020, where Mr. Buffett conveyed giving an example of 1929 depression and how stock markets behaved then was interesting. Dow Jones then fell from 350 to 200 in the first leg of correction and then went back upto 260. But after going upto 260, it crashed almost 80%. Today, we are walking in a dark and large jungle and we do not know when the darkness is going to go. Buffet is not buying anything right now and is keeping on to his liquidity of $125 Bn. The key reason for this is because he is largest re-insurer of the world and he is unsure of the claims coming his way. Maybe Buffet’s age has led him to be so cautious in his view. You think differently about risk when you are 25 compared to when you are 50, Buffet is 90 years old. However, Buffet is cautiously optimistic in his remark, “Never Bet Against America”.

• Fear seems to be more contagious than the virus : the virus seems like a 12M problem, but the fear or paranoia is more than warranted. One must be optimistic of the fact that humanity will come out of this situation for sure. Yes, Warren Buffet is sitting on large amounts of cash but, his mandate as the world’s largest insurer is different than equity fund managers. For equity fund managers, sitting on cash doesn’t work. If one unable to predict a 40% fall from the peak, one would also be unable to predict the 40% rise from bottom.

• Massive destruction of wealth in businesses like Airlines, Hotels, Infra due to COVID 19, and impact also to be felt by Banks that are lenders to these sectors. But, After from FMCG, Auto looks attractive as many factors are turning positive for this sector especially for two-wheeler/motorcycles, and small cars. Some of the positives are
1) expected fall in fuel prices, which should continue to remain low.
2) Low interest rates.
3) Discomfort to travel in public transport.
All this would lead to rise in demand for motorcycles, and small cars. Pharma is another sector that looks attractive. In times to come, “India could be pharmacy to the World” Telecom is another sector that looks attractive, especially as sector now has low competition and space operates like a duopoly. There is a consistently rising demand for data services during COVID and post COVID times.

• 1+1 movement could get a lot of FDI in India. China is a one manufacturing hub many multinational companies. But, most of these companies are looking for another alternative, in the post COVID World as the distress wave against china is real. CII & Indian Govt. has made representation to around 1500 global companies for moving production to India.

• Good businesses will not only survive, but also take the pie of market of not so good businesses, for whom COVID 19 makes situation very difficult. Thus, polarized nature of markets to continue. Market would remain narrow and in the favour of Quality. Looks clearer that, growth in GDP to say $ 5tn will be led by existing and established businesses who will be fighting for market share, leaving negligible room for new players to emerge.

• Gold is a non-productive asset class. The huge rise in gold price is surprising and basically because of risk aversion. Equity is a productive a long-term wealth creating asset class. It creates wealth through businesses creating year on year earnings.

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