For the first half of 2020: Stay put, stay invested

As an individual, all of that can be overwhelming. The message coming out from the weeks gone by is that you need to stay put.
A rally in gold indicates fear in the market while a rally in the Sensex typically indicates greed (Express Illustrations | Tapas Ranjan)
A rally in gold indicates fear in the market while a rally in the Sensex typically indicates greed (Express Illustrations | Tapas Ranjan)

A lot has happened. The first half of the year 2020 has created experiences like never before. Disruptions to your life are a norm. Your personal finances are affected in multiple ways. Interest rates are trending down while gold is soaring. Equity assets are witnessing a volatile trend as uncertainty continues to loom. After falling dramatically in March 2020, the S&P BSE Sensex has gained significant ground. It covered a distance in these few weeks that previously took it three years—between 2014 and 2017. 

As an individual, all of that can be overwhelming. The message coming out from the weeks gone by is that you need to stay put. Financial markets are betting on a V-shaped recovery in the economy. That is not just in India, but all over the world. A lead indicator suggests what lies ahead. If you are on a highway, a signboard would tell you that there is a curve or a bump ahead. It will usually give you all the information you need about the road you are taking before you get there. 

Financial markets are often on the look out for such signs. That is perhaps the reason why today’s market prices are a function of tomorrow’s profits and earnings. The IHS-Markit manufacturing and services PMI (or Purchase Managers Index) work as signboards for your road ahead. It is a monthly survey of purchase managers from services and manufacturing businesses on their ability to buy goods and services. 

From India’s standpoint, the services PMI matters since the country is predominantly a services economy. As for China and many other countries where manufacturing is a prominent driver of growth, the manufacturing PMI assumes significance.  For the month of June 2020, the Services Business Activity index was 33.7. That was significantly higher than 12.6 reported in May 2020. However, the survey results are positive for the economy if the index is over 50.

That indicates expansion. The index in June is well below that. The agency highlighted only 4 per cent of the businesses surveyed reported any growth in business while 37 per cent recorded a drop. What it means A key factor here is that the services economy in India is showing a recovery but is well short of expansion. It means economic activity has improved over initial periods of lock-down and bounced back. That is perhaps the reason why financial markets are optimistic too. However, gold prices and the S&P BSE Sensex cannot rally at the same time for long.

A rally in gold indicates fear in the market while a rally in the Sensex typically indicates greed. The biggest factor creating dichotomy like that is the surging number of infections around the world. India is already the fourth biggest country with infections. Any recovery in the economy is dependent on the control of the spread of the disease and discovery of a vaccine or an anti-viral.  A lot of economic activity is restricted. As a result businesses that cater to recreation, entertainment and manufacturing are witnessing limited activity. Businesses that can conduct themselves remotely like technology and other services delivered online are doing well.

A lot of it depends on activities you do as an individual. According to US-based Texas Medical Association, grocery shopping, receiving food delivery, walking in the park or playing tennis, eating at a restaurant, waiting for a doctor’s appointment, playing golf and spending two nights at a hotel are low to moderate risk activities.  Going to a bar, working out at a gym, going to a movie theatre or a stadium, travelling by plane are all moderate to high risk activities. There are analysts predicting a prolonged period of low demand. 

As someone looking to identify opportunities for future growth, you may want to align your investments accordingly. Investing in shares of businesses that cater to healthcare, consumer products, food or groceries and delivery of food and other essentials are a good option. A lot of structural shift may happen towards digital payments and documentation. Businesses that enable a digital eco-system are also good investment options. Money, just like water, should not stay at one place. It should be ploughed around businesses. That enhances its productivity and creates a compounded return over the years. All it takes is an ability to buy and hold. 

Services PMI rising
33.7 points was the index value of India’s services business activity for the month of June this year, up from just 12.6 points reported in May

(The author is editor-in-chief at www.moneyminute.in)

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