Rerating of the Economy? Or Good time to Book Profits
Is it a beginning of the new age of investors in the markets on the cusp of a Rerating of the Economy?
Is it a good time to Book Profits and become cautious?
Over the last week while interacting with a few Business Owners and their Department Heads to take a feel of #Budget2021, I discovered that the overall pulse was, that the Budget was a well knitted one & the key takeaways were :
The Budget showcased seriousness on the part of Government realising the need for Capital Expenditure.
Setting up of National Monetisation Pipeline for monetising operating public infrastructure assets for financing of new infrastructure projects was viewed as a key source of funding along with Disinvestments.
There was a sense of true commitment on part of the government by continuing the Current Tax Regime and providing the requisite must haves to Promote and Support Local Industrial Activity for reviving the overall Economic Activity upfront.
However, the Heads were jittery about the Large Government Borrowing program of both Central and States and were uncertain about the current Economic Scenario.
However during the course of my conversations, I noticed that there was a lot of interest building up in Equities.....
Many entrepreneurs have indicated that their capacity utilisation is low due to lack of demand, operational issues due to Covid 19, shift of unorganised to organised play and are thereby parking their business surplus funds in markets to earn a return by investing in other businesses.
The Department Heads indicated that the favourite topic of Interest during office hour’s especially in cities where offices have kind of normalized or during their friendly conversations with their office colleagues is "AAJ KA TRADING PROFIT ________ HAI". Most of them are novice to the Finance/ Share Trading World and during the said conversations they portray their heroics of Fund Management #HighRetailParticipation
Discovered that most of them have graduated from trading in Equities and are taking a punt in FUTURES and OPTIONS Segment to make a Quick Profit without understanding the grave consequences that may occur incase the market corrections. #KheloIndiaKhelo
To Top it up... We have been seeing massive Interest in Trading in Equities from many Friends and Acquaintances specially from the Non Financial Background/ Professional Fields who would love to Trade in Equities and make a Quick Buck due to their peer influences. Most of them have barely interacted with me on the said topic earlier and all of a sudden there is a new Interest which has spiked up due to the fund management skills of their colleagues and friends. They are wanting to deploy their kitty at the earliest wherein, they can make a Quick Profit from "TRADING IN EQUITIES”. #MarketsAtAllTimeHigh #FOMO
I saw a similar surge of interest rising to its glory, between the period October to December 2017 until January 2018. During those days there was a campaign of #MutualFundsSahiHai was garnering interest with the Investors.
One has to be watchful, as we are not out of the woods yet and the NPA muddle has just been postponed by a few Quarters/ Years due to Government Support to the borrowers with the Liquidity Infusion, Suspension for NCLT admission and the Moratorium Window initially and subsequently with the One Time Loan Restructuring Window related to Covid Stress. It is to be noted that most of the private banks have created a capital buffer either by divesting their stake in the subsidiaries or raising additional capital by way of QIP. This is very well reflected in the RBI's Financial Stability Report 2021.
Similar strains were seen during 2008 Crisis which was far lesser in magnitude, wherein some companies collapsed immediately, some of them gave up around 2012 and some survived until 2014-2015 and finally collapsed. The need of the hour is to realize that Business Models and Ways of Doing Business (Online / Offline) have changed dynamically and even though the requisite support is provided by the Government, it may be difficult for most companies/borrowers to service their debt until and unless the Economy Revives dramatically and these borrowers are able to service their debt, or else it would impact the Overall Banking System and Markets as a whole. The Budget announcement with respect to setting up of Asset Reconstruction and Asset Management Company is a step in the right direction, however how well it is executed needs to be seen.
Globally Governments have infused Trillions of Dollar in their respective Economies to withstand the jolt of Covid 19 stress, however a sizeable portion of said infusions have entered financial assets like Equities, Gold, Bitcoins, Bonds etc which have rallied substantially from its base of March 2020. Considering this Liquidity Driven/FOMO based rally in the Equities in India and Globally, it could be a good time to Book Profits for One's Investments. It would be Prudent to have a Stock Specific approach keeping in mind the Fundamentals and Value attached to it. It is these factors that would come to the rescue of Investors, in case of market corrections. It’s better to have the Profits in Ones' Balance Sheet rather than watching and enjoying the Notional Gains in the Account statements/Demat statements.
Whether it’s a Beginning of the New Age of Investors in the Markets on the Cusp of a Rerating of the Economy or Whether it’s a Good Time to Book Profits and become cautious, only time will tell....
Parag Prakash Hemdev
P H Financial Group