ValuePickr Forum

Lockdown - Extension - Market Timing Agility

Two important things i would like to point out.

  1. The situation in India till few days was quite good with low death rate and no community spread. But if you see carefully , in last couple of days the number of new cases shot up to around 20-25% rise every day. Now reports from my colleagues in government hospitals is also not good. They claim that originally the patients were quite stable and most were managed in wards only but since last couple of days percentage of critical cases has shot up so in comming days we might see more deaths. Already on if you see in Maharashtra mortality has increased from around 2% to around 5% . Apparently this markaz event has changed everything. The virus has affected almost everyone who attended markaz and it seems quite virulent too similar to the one in italy/Spain.

  2. In large number of places people are totally dependent on stores like big bazaar , Spencer, Grofers, big basket due to absence of local kinara shops. The services of all these are affected because of 2 things. Scarcity of workers, delivery staff and disruption of supply chains. I went to one big bazaar outlet today and spoke to there manager. There was no stock replacement since last 1 week and they can sell only what ever they are left with as there is hardly any supply from FMCG companies. Situation is similar on online stores.

I personally feel the government may be forced to continue lockdown indefinitely till situation improves infact they may change into a proper curfew kind of situation. But they will have to find out a way to let farmers go back to fields for harvesting and let Staff working in these FMCG companies to work without any restrictions. So more detailed and selective roadmap for restrictions will be provided.

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The point i am conveying is that that developed countries like USA and Europe can think about fighting corona with there advanced health care. Even these countries have failed despite the quality of there health care and were forced to later shift to lockdowns. India with its dismal healthcare system has no weapon except lockdown to fight corona. Till now they implemented planned interventions like janta curfews and 21 days lockdown but with the way situation is worsening it will be now a do or die situation so forced curfew would be only solution. Or else if they withdraw curfew despite worsening situation it will be akin to accepting defeat and leaving everything to fate.

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Even whatever you are predicting let’s say, will happen! How will it bring in normalcy I really fail to understand? It will lead to more chaos, disruption and riots on the top of spreading the virus unchallenged! I think it is highly unlikely that this will happen and any government in the world cant afford to let it happen! Would be simply a disaster and will take years to recover from its effects.

The concern of lower strata is valid. However, there are many individuals/NGOs/Politicians who are providing food packets, especially in urban areas. Quite a lot is happening in the same Bangalore already (for e.g: our society is doing in North Bangalore). And our government and Doctors/Health Workers/Police are already doing their best to avert it!

“Jan he tho Jahan he”, if this is not understood administration (as of today, unfortunately, it is not and hence the spread has picked up the pace - lockdown extension till end of April looks inevitable, maybe beyond) have multiple options:

  1. Sec 144 with Police
  2. Call in Army (just like in Italy) - Kashmir has been dealt most recently under lockdown very peacfully
  3. Shoot at sight

Irrespective, the impact on the financial markets fall in my perspective under:

  1. Q1 earnings getting hit
  2. Q1 and Q2 earnings both being hit

The extent of this, of course, will depend on the industry and the tailwinds/headwinds have been discussed already at length in this thread! Let’s focus on what is in our hand instead of freezing at the situation as value pickers “separating the wheat from the chaff”!

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I am seeing a vegetable cart vendor coming in our street daily for last few days. I enquired her about sales. She says people don’t come out to purchase.
One more thing is provisional shop owner near our home was saying he will most likely close soon…There were not enough stocks to purchase and he is not able to refill the stock i suppose.

An extended lockout is simply not possible in a country like India where majority of the people live hand to mouth. Even with NGOs and others distributing food, a lot of people are still not covered under that.

Now, coming to middle class( India ), there are 2-3 levels. The lower levels might have savings to sustain for another month. But most of them will have debt as well( EMIs and other personal loans ). And these are the people who are going to be hit hardest with lockdown related job loss.

And certainly, they care for their food and savings rather than a virus infection which has 2-5% mortality rate ( I am not sure whether majority of the people really understand the major issue is health care systems getting overwhelmed rather than the virus itself).

So definitely, GOV will think thrice or more regarding extending country wide lockdown. A more plausible solution would be lifting lockdown at least in some parts except the hotspots ( like metros, some parts of Kerala, Maharashtra, TN, Delhi etc).

And strict policies across interstate/international travel. This might get at least get economic wheels rolling a little.

Now there are two possible outcomes.

  1. India controlling the rate of infection very well ( not an exponential growth). I hope this happens.
  2. Exponential growth which forces GOV again for a lockdown - No idea how this will pan out, might be very painful for many people.

And with antibody testing coming into picture, there could be a chance that people with antibody certificate can go out and work ( I think in Germany, they are planing for this immunity certificates ). With no sight of vaccine in near future, I guess that could be the direction whole world might move in coming months.

And regarding market dynamics, with so many uncertain parameters , well its anybody’s guess. And comparing it with 2008 situation is not right, since its not (only) the finance market that is impacted now, its the whole production/supply-chain/consumption. And it’s not a decline, but a sudden stop. And in 2008, central banks had the option to reduce interest rates plus QE. But now, with almost negative interest rates, how long they can continue QE without causing an asset price inflation again? Read this with 2 trillion stimulus package and dow moving up with 6.6M Americans filing for jobless claims.

Another side is with all these lockdown, if any positive news comes out ( new vaccine/BCG/antiviral drug) and this uncertainty goes away, we will see a lot of people going out and spending a lot ,all around the world. Seriously, we never valued our freedom of movement till now. And when we get it back, everyone is going to use to the fullest.

In stock market, sticking with the leaders would be a wise choice now. Once the uncertainty goes away, I will be looking for survivors in small/mid caps.

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With due respect to everyone views, Nothing is impossible in India with a strong leadership and ability to take decisions. With situation changing every hour, there is no point thinking today if there will be extended lockdown, as this decision would finally be taken on or near April 14. India curve is still flatter than rest, considering the recent sporadic event. I wish it is contained with herculean efforts of the authorities and we get a flatter curve back again.

Regarding big old investors freezing, that’s probably because with all their experience, they would de-freeze in a matter of seconds, when needed. So, I would not bother much what they are doing as simply because I would not know exactly why they are doing what they are doing and when they would do what they would do.

In this circumstance, I would stick to basics, know my style, know my target stocks, do what I need to do and most importantly pray, wish & act so that we conquer this crisis soon. Investing is secondary.

It will be better if we can discuss on medium/long term sector/sub sector impacts. That will be more insightful, as that variable would not change.

Thanks

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One big learning for me during 2008 was this - Actively keep considering all possibilities without committing mentally to any specific possibility. This can help us be more agile if not anything else.

The above is a behavioral actionable for me, not necessarily an actionable on what to buy.

Every meltdown goes through a similar process since narrative follows the price. When the media and investor narrative looks negative all around, there is some merit in going against the grain and thinking about other scenarios but in not taking positions till the real world gives an indication of what might transpire. Even at the risk of sounding silly when one considers possibilities. The market does not punish for thinking about possibilities which do not materialize, the market punishes for acting based on hypothesis which turn out to be wrong. I don’t mind being silly in my thinking but I need to be measured in my actions.

My investment process will see a couple of minor tweaks but what I end up buying will not depend on whether the lock down will continue or not. When I buy will be influenced to a good extent on whether the lock down continues or not and on what other events transpire in the short term

I am not excited about buying a high quality business, I am excited about buying a high quality business near to the best price that the market can offer. We can do all the sector related fundamental work we want to (which we will anyway do irrespective of the market situation), in market meltdowns the investors who get their timing right (whether by design or by luck) are the ones who laugh all the way to the bank.

Working on my agility and being calibrated to market moves is the biggest actionable for me right now. Need not be the same for everyone, some investors may see greater value in cutting out the noise and focusing more on business research.

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Valid thoughts. On similar lines, I am trying to look at various technical indicators, to let market tell me where is the opportunity.

Simplest would be by % fall YTD, 1 Year etc. which gives sense of what has shown resilience through divergence in share prices. Mapping this with sectors and sub-sectors turns out to be even more useful. We also know that there are some defensive hiding places like FMCG, Pharma etc. so we can ignore/consider based on our ultimate aim. Ofcourse, I layover many technical indicators apart from just price.

From the end list, worth studying possible cluster of sectors/sub-sectors, their growth dynamics etc. to get a clue of next big winners. Again, this is slight contra approach where we try to pick from companies which are resilient vs. those which are possibly cheap in terms of price as defined by maximum % fall.

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RBI has changed the timings for the Currency and Debt markets upto April 17,new timings will be 10 am to 2.00 pm,expecting SEBI to follow through on the equity markets with a similar circular soon.

@zygo23554 I did not understand how you are working on your market timing agility based on your hypothesis. Can you explain it a bit?

Trouble in Financial and other companies depends on how long the lockdown remain in India and in world.
It seems it not upto 14th April but more than that.
Singapore news -

Another critical point - the lockdown is in the critical period when most of companies are doing their most of sells…eg Air cooler, AC, Agro, consumer durables. Normally, monsoon period (after lockdown) remain slower growth period for all sectors. I think now real growth will start in next festival season Diwali ( after monsoon) if people have jobs and monsoon remain good.
As investor, we will have sufficient time to find opportunity. Hence, no need to hurry but let dust settles

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Though MFIs are badly affected due to non recovery and doubts on recovery of loans, I feel they will be quick to recover. Lockdown may be lifted in stages. Villages and small towns will be first to come out of it. MFIs operating in these regions will be able to recover installments fairly quickly. Even during the lock down some activity is still going on such as milk, vegetable selling,etc. Arman, Credit Access, Bandhan are hammered out of shape and probably do not deserve it.

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Good read on the rural distress https://www.livemint.com/news/india/corona-has-pushed-bharat-to-the-brink-11585845027852.html

The government will be definitely thinking on these lines.

I can see two possibilities -

  1. For the majority who live hand to mouth, even a week’s saving might be a luxury (in spite of kaccha loans taken for dwelling, medical, etc).
    If the government can ensure that the majority of its population is getting food for survival through its efforts(various schemes, NGOs etc), it will not hesitate to extend the lockdown. Probably they would get a better sense of this till 8th-10th April to make a decision. Most probably this seems to be not in a bad shape because we haven’t seen social unrest incidences being reported in the media at least.
  2. The last mile efforts to provide food for survival start falling short. Social unrest incidences start to increase. Practically the government has to call off the lockdown and then go for ‘treat as they come’ and trust in herd immunity. The urban population that can afford to stay home will choose to do so to avoid infection but others start working out. Though this will be not the same as before because the majority who serve in metros still have their opportunities very low.

In either case if the juice is in the terminal value of our investment candidates then the squeeze for 3-5 quarters shouldn’t stress us much to act desparately.

Some context on why I find myself thinking a lot about about this…

Objective: Try to identify key events which can trigger market reactions and attempt to calibrate position taking accordingly. For all I know this may turn out to be a futile exercise, but I want to have the satisfaction that I gave it a good shot

Hypothesis - We are at a stage where the market is more worried about the 2nd and 3rd order economic impacts than about whether the virus eventually affects 40 lakh people or 2 Cr people

How do steep corrections hurt investor?

It is usually due to a sequence of steps and not due to the single factor

  1. Get caught in a correction which one was not able to anticipate (all big corrections work this way)
  2. Make the mistake of buying in too soon and not being prepared for events that can shake the markets much more before things get better
  3. Lose one’s nerve at the worst possible time and sell out before the inevitable bounce back, in the process miss participating in the bounce back and live with the scars

If one gets (2) wrong, there is higher likelihood of (3) occurring. Avoiding (2) is the easier part in my opinion, since (1) has already happened it is possible to think in terms of possible events and outcomes. One does not have this luxury till (1) actually happens since you cannot prepare for something that is not even known yet.

Examples from the past on how certain events have caused further market mayhem?


Source: Public media, chart from Timothy Geithner’s book


Source: US Treasury publication

It is very important to see the timeline of events and the market reaction to the same rather than just studying the trend of market fall.

From the above two charts one can see that the period August end to October mid is what broke the back of many investors. People who did not heed calls of prudence and reduce equity exposure (if already high) and kept buying for reasons of lower valuation were the ones who got hammered the most by the time the eventual bottom was made.

What happened during that 45 day period? - Lehman Brothers was allowed to fail which was unthinkable given that lot of troubled organizations were being bailed out

What kind of news can affect markets?

Type 1 - Continuous news
In the current context, number of new virus cases falls within this category. The market is not really going to bother about the specific numbers too much and will just focus on the broader trend.

Type 2 - Discrete Events
Examples being -
Will the clinical trails of Hydroxychloroquine/Avigan/Remdesivir work? Yes/No
Will the US go into a complete lock down or not? Yes/No
Will India come out of the lock down by end of April? Yes/No
Will Central Banks eventually bite the bullet and start buying equities as well? Yes/No

Once the discrete event plays out, it gets relegated to Type 1 since the news gets digested and the incremental value of the information goes down.

In my experience (whatever limited history I have read), sudden market movements are caused only by Type 2. There are some things which the market takes for granted which turn out to be wrong. Such events can hit during non crisis situations as well, for example the Brexit vote in July 2016, Trump coming to power in November 2016, China starting off a currency war in August 2015. Those were some of the most volatile market days in recent history

Fixed Income and currency markets pay a lot of importance to such events (which are known well in advance), these are all institutional markets with minimal retail participation unlike equity markets. Whether they get it right or wrong is not the point of discussion, they know very well that every time the central bank governor speaks there is wealth of information being telegraphed. The smarter investors already knew that the March 22 one day curfew was a sign of things to come.

Type 2 discrete events matter big time when markets are already nervous, the classical gyan and narrative in equity markets is to ignore such events and focus on things that can be estimated well. This advice holds true 99% of the time, I believe we are in that 1% of the time where it makes sense to focus on events and think about them pro-actively.

The worst case market scenario of the current health situation is that of so many people getting affected to such an extent that their entire lifestyle changes, they stop spending on discretionary things and just focus on survival. The lock down pretty much ensures that we are there in a proactive way before too many people get affected rather than doing so in a reactive manner. There will be an obvious economic cost to pay for this which policy makers as of today think is tolerable, the approach may change if the economic cost turns out to be much higher than envisaged.

Which is why when the lock down in India ends is a very important event. Every month of lock down shaves off 8.5% from the GDP, there obviously is a huge difference between 45 days of lock down and 4 months of lock down. Imagine the combined effect if India were to go into a 4 month lock down and the US announces a nation wide lock down too in the meanwhile.

Now how does this affect the buying decision? I am surely not doing something unique, every decent investor on this site is saying a variant of “wait for things to play out and don’t be in a hurry to buy”. Mind you they aren’t talking of nibbling once in a while, they are talking of serious buying. I am just trying to get deeper into the nuts and bolts of why that is and what events I would like to track before they start playing out.

More on this soon.

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Would request you if you can provide a primary source for the above data point, which is to my mind, a very important data point you have shared.

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Major events that have played out in the meanwhile -

Stability in the Oil cartel returns though oil prices will continue to swing for a while. The prospect of a supply war at a time when demand is expected to collapse was a huge risk to the US bond & banking markets. Oil at very low levels for even 2-3 months could have been disastrous sending a bunch of companies in the US into serious solvency problems. Liquidity issues can be solved by central banks, solvency problems will call for bailouts which aren’t so easy to execute. Overall impact is positive for sentiment across markets

Increasing focus on whether the lock down is achieving the intended effect or not across countries. Going into lock down for a month is an easy decision for any Govt (they can always say “we tried” and give the perception of prudence), extending this into a 3-4 month lock down however is very difficult. Indian Govt came out today and said extension by another 20 days which was anyway expected, interesting thing was the reading between the lines that said they might consider opening up clusters that are behaving well/less affected well before the May 3 deadline.

Extending this thinking deeper - Govt does not want to be in a situation where the lock down is opened but supply chains continue to remain broken. The next 2 weeks will see a lot of action in the background where the Govt is tying in things using the FMCG distribution channel at a state level. Read more here - https://economictimes.indiatimes.com/industry/services/retail/government-to-set-up-20-lakh-suraksha-retail-shops-to-meet-to-provide-daily-essentials/articleshow/75106516.cms From my discussions with some FMCG folks over the past 3-4 days, inventory levels needs to be replenished which will anyway call for focused action. The Govt will likely have the revival mechanism working before the lock down is lifted to avoid chaos.

My overall takeaway continues to be that the lock down will end sooner than later, especially in India. A 3 month lock down can and will most likely be disastrous for India - won’t be surprised to see reports projecting zero to slightly negative GDP growth for FY21 after this 20 day extension. The economic prospects for a longer lock down will start looking really ugly. We just do not have the means to keep pumping in money as stimulus or for the central bank to go into QE mode like the developed nations.

Here on we will have some companies that start announcing Q4 results, on the conf calls all questions will be about Q1 rather than what happened in Q4. We will soon have some sense of the economic impact across industries and companies, all these days we were just shooting in the dark. The market is unlikely to get too worried about a Q1 washout, a Q2 washout is a different ball game altogether and can make the stock market outlook much worse that it is right now.

Markets across the world have also started reacting to liquidity measures and central bank announcements. We may have well seen the worst of the Wave 1 of the pandemic in terms of the impact on financial markets. VIX has cooled off more than 40% across equity markets, there are no jerky FX movements or wildly swinging bond yield movements too. How markets react to central bank action is a huge input to my framework, things are much more normal today than they were around March mid. Just see the gold chart in USD terms since the beginning of March till today.

Between 2010 and 2013, developed country markets were in a strange phase where bad economic news was being cheered (which meant QE and central bank support continues rather than be withdrawn). I would not be very surprised if the markets go into that mode here on, so we might see economic news that looks bad in a conventional sense but the markets just shrug it off knowing the central bank has it’s back.

The big risks to the current market situation are a combination of wave 2 of the pandemic in the countries first hit by the virus and extended lock downs as a result.

The market agility factor will come in handy where once these big risks are addressed/covered, one can actually go and increase the equity allocation % itself, rather than just continuing to buy the stocks that have already been identified. I would spend more time listening to asset allocators rather than to fellow stock pickers over the next few weeks/months.

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Well i agree and do hope that we may not require another lockdown after 3 may.

But a lot depends on the rules which the government will define for easing restrictions in a particular cluster. Its always desirable to kick start the economy to solve the problem of job losses , food and other supply shortages. In the speach the PM for the first time acknowledged that ‘Jaan hain to Jahaan hain’ . Clearly now the ones would be to clear infections from a cluster fully before lifting lockdown together with making sure the essential suppliers reaches all. We can worry about economy only after we have solved this puzzle of corona to the root. Economy will kick start only after those who belong to working class can go to their jobs without worrying about acquiring disease. As of now 60/70 % of infections and large part of deaths are reported from working age group only. So they know they are not immune.

The economy hubs of the country (Delhi and Mumbai) have not at all peaked. Infact a new wave of infection is about to get start from the hospitals itself. Large number of corporate hospitals are reporting infections among doctors and patients. Almost 10% of tests conducted in delhi are positive, so may well have reached stage of community transmission in delhi. So i don’t see easing of restrictions in these economic hubs even at the end of 3 weeks.
I hope and prey to god that i am proven wrong.

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The trend of Number of Infections in the World with each passing day… It is still clearly upwards

Figure has reached 20L

This is the rate of Infections per day, peaking around around 1L

Past pandemic of 1968 had death toll of 10L people the world over. Another in 1956, the Asian Flu took 20L and lasted 2 years, and wiped 15% population of Hong Kong.

These things are serious. The one we are currently in, has a death toll of around 1.25L a comforting figure in comparison, and it’s been around since January, around four months in.

Going from history, in the best case scenario, this could last another 2 quarters and take a lot more lives, considering earth is more populated since.

Things are far from being normal. It feels the markets will test the Nifty bottom of 7511.

This event will cause havoc in varous industries, affecting Banking sector the most, which has most weightage in Nifty.

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As a person who has a substantial amount of networth in equity market, I wish and hope it were true. But facts point to me otherwise.

  1. Virus come in waves. What we are seeing now is the first wave. It will subside and the second wave will start and so forth and this will keep going on till the herd immunity is reached either due to substantial number people (60%-70%) get infected and develop immunity or through mass immunization through a successful vaccine. There is no other way. In this way, it is different from other natural or man made disasters like a massive tsunami / earthquake or a nuclear blast which are basically one time events in a smaller timeframe.

  2. If the economy were to run at full speed, it needs an abundance of cheap labour. First phase of migration from cities has already happened before the lockdown and second phase will begin almost immediately when the communication network starts after the lockdown. Another problem is that with the reverse migration, the virus will spread to the interior of the country where there is a lack of testing and isolation facility, complicating the healthcare situation manifold. And these workers will not be in a hurry to go the economic hubs again to join workforce.

  3. It’s highly probable that what we are seeing at Delhi, Mumbai, Indore etc is that the community transmission has already started. If that’s the case, these economic hubs will be in lockdown even after the rest of the country opens on May 4th. When these economic hubs start sputtering, rest of India cannot carry on as usual.

  4. What will happen to consumer psyche once this crisis is over? Will they go out and start buying boosting the economy in the process or will they continue to hoard for many years even after the crisis is over like what happened in US after 1929? Indian household debt has gone up from below 9% to above 12% of GDP in the last few years and it is one of the few engines that has kept the economic engine running. What if consumers decide to take a pause and boost their savings?

The markets are buoyant after the last month fall and may be the wisdom of the crowd is really superior to any individual analysis. But what if it is not?

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