This is a great mix of factors: Biden taking over as US president, his stimulus proposal coming with additional unemployment benefits; the vaccine rolling out. Given all of these parameters, it looks like there is no other way but to go up!
Obviously Biden coming to power is good news but it is discounted by the markets. So, from a market standpoint, today was not significant in the overall scheme of things. The markets are forward looking and they are looking at what is coming next and clearly there is hope that this $1.9-trillion stimulus package will make it through the Congress and that will be the next big catalyst for the market.
The vaccine rollout has started and it is going to drive improvement in economic activity as immunity grows both in the US and the rest of the world. The Fed and other central bankers are completely supportive in terms of liquidity injections and out of that $1.9 trillion, some amount is going to find its way into stocks and some into the real economy. Stocks are roaring well ahead of the real economy but hopefully the real economy is also on a pretty solid recovery path in the coming months.
If in March 2020, somebody had said Sensex would hit 50K within a year, it would have been unbelievable. The markets have been way ahead of the economic recovery.
That is a really good point that none of us could have foreseen but in a way, Covid compressed for India the slowdown that was already taking place. It accelerated that slowdown and then growth accelerated. It has helped the formalisation of the economy which helps companies that are part of the stock market. It does not help the informal economy, some of which was already taking place but at a slow pace after GST was introduced.
Some of the more marginal players both in the public listed equities but more so in the informal economy have been big losers. The online businesses have benefited a lot and some companies have benefited from that. In our opinion, in CY21, the pre-Covid slowdown is slowly but meaningfully reversing and for Indian companies in FY22, the earnings upside could be dramatically better than even what many analysts are forecasting.
If something goes wrong and the things do not play out as we expect, that could hurt the market but right now I do not see signs of anything that we should worry about and India is benefiting from global liquidity.
Some of the announcements that have come around are setting up for what is likely to be a multi-year potentially private sector capex cycle driven by some of those factors.
