Market Musings Week 17: When will things improve?
By now, most of us have seen the deadly second wave of the virus afflict our friends and relatives and many have spent nerve-wracking hours trying to arrange hospital beds or oxygen supplies for them. The impact has gone from being just numbers to names to people we know – be it friends or relatives. On Thursday, India accounted for more than two-fifths of new cases worldwide and a fifth of the deaths. And these are the official numbers, which few seem to have any faith in.
But there is hope. The shortages of medical supplies should be remedied soon. There are signs the second wave is ebbing in Mumbai and it has probably peaked in Maharashtra. The rise in daily new cases has slowed. Epidemiologists are now predicting that India may reach the peak of the second wave either in May or June, going by the experience of other countries.
A word about hope. This is what The Lancet, one of the best medical journals, had to say about it in the context of India’s covid policy last September: ‘Hope is important, and recognizing successes is vital, especially during a pandemic. But presenting the current situation in India with a too positive spin not only clouds reality but also hampers vital public health initiatives. Perpetuating unrealistic claims or failing to honestly report negative news creates uncertainty among the public and health-care professionals, discouraging people from taking preventive action or taking public health messages seriously. India has the expertise in medicine, public health, research, and manufacturing to lead the nation through the COVID-19 pandemic. To capitalise on these attributes, the country’s leaders must respect scientific evidence, expert commentary, and academic freedom, and not provide false optimism.’
That warning needs to be taken even more seriously now.
Vaccination is the only way out and I hope that we will have enough vaccine to inoculate everyone on a war footing.
Why are the markets still high?
Currently, Indian equity markets are still trading at very high multiples. Though the Nifty has fallen 4% from its March high of 15,432, it gained 72% over the year ending 31 March. Expressed as a multiple of earnings—the Price-Earnings, PE, ratio—the Nifty is trading at 35; it has typically been priced between 10 and 27 times earnings!
There are 3 good explanations why equities can sustain these levels—the interest of foreign investors; the low returns on other assets, like fixed deposits, real estate or government bonds; and the expectation of a bounce in earnings, as the economy recovers from covid.
However, there are many unknowns. Will a shift in market share be enough to sustain growth in corporate profitability? Unless growth is restored, will equity investors support Indian equities at record PE multiples? And what will be the impact of the second wave of covid-19 on the economy? Only time will tell.
Stick to your Asset Allocation and ensure that your assets include international equities and gold! Get vaccinated and wear a mask when outdoors!! Together we will prevail!
Source: Moneycontrol, Mint, Indian Express
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