Market witnessed a sharp correction in Feb, 6.76% in Large Cap, 6.95% & 4.22% in Mid and Small Cap respectively. This was mainly due to heavy selling by Foreign investors, amid the spread of Coronavirus and its cascading effect on Global and Indian economy. FII sold USD 1.6 billion, while the Domestic investors remained net buyers, at USD 1.3 billion. This was a very generic selling, and in the coming months, we can see some merit-based recovery, when the virus fear eases-off.
Though India remained immune from this disease, the industries dependent on China and other counterparties affected by Coronavirus, is facing supply chain disruption, but the resulting slow-down looks temporary. If we look back into history, China is known for such diseases, like SARS in early 2000 & swine flu in 2009. Globally, strict measures are taken by all the countries to control the spread, even China, which is the epicentre, has started to show the early trends of decline in the new cases being detected, since last one week.
India’s biggest competition, when it comes to manufacturing, is with China, as both these countries have labour supply advantage. With the recent Corporate tax rate cut (brought down to 15%), India stands to gain towards future capital investments.
India has been grabbing major attractions, with many MNCs planning to set up Manufacturing plants in India before 2023, to avail the new Tax rate benefit. With China slow-down, Industries are looking at building other alternatives, where India comes out as a clear winner.
India will have a huge upper hand on China in the coming years. The virus effect may create a short-term disruption to overall economy, due to interdependency globally, but it is expected to perform even better in coming years.
For the month of March, we’re expecting the market to remain volatile, till the time the virus spread slows-down and eventually starts falling. Analysts will foresee and give their expectations regarding the quarterly results in the late March, which is due to be released in April. Overall JFM quarter is expected to be subdued, while the GDP for Q3 is 4.7%, Q1 and Q2 GDP was revised to be 5.6% and 5% respectively. It is expected to fall further, as we are expecting overall global slowdown in February and March.
Since the corrections are expected to be temporary, we can be opportunistic to invest more in equity, and hence one can look at increasing equity allocation, in phases.
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