Market Meltdown, the Virus, and our Actionables

With MSME meltdown,getting WC from NBFCs will not be so easy in future, in that case, sectors where % of Unorganized is still very high, those sectors will see value migration…or see consolidation…eg Shoes/Textiles…huge disruptions


Some additions:

  1. Travel dependency impacting sales - particularly international travel - the virus will likely continue circulating in different countries and hemispheres for a long time - 18-24 months or longer - that will continually disrupt travel or may lead to long term travel restrictions that will restrict business travel. B2B businesses like IT/ITES etc will suffer, as will anything that depends on international markets, particularly emerging markets in Latin America etc (next hotzones for infections). Think niche pharma / services cos.
  2. Layoffs and salary cuts leading to cuts in discretionary spending - autos, consumer durables - Likely impact of layoffs and salary cuts will be to cut back heavily on discretionary spending. Personal thesis is ecommerce will jump into this void with deep discounting as consumers will be very very price sensitive for next couple of years - further hard times for brands. Premiumisation strategies and products will fall apart - market share to be gained by ultra affordable, durable and reliable products.
  3. Real estate further hit, blowback to finance co’s - there will be an implosion in commercial real estate rentals and property values due to retail / hospitality troubles. Knock on effects on RE / mortgage lenders and LAP based lenders. Concentration risks remain due to certain buildings / areas getting stigmatized due to potentially being infection zones.
  4. Offline retail in cities - ecommerce and delivery based daily essentials co’s like Big Basket are winning the day with customer fulfillment at this time - this will stick around for the longer term is my guess, permanent dip in retail footfall in this category. Not so good for offline retail chains that rely heavily on these categories.
  5. Massive moral hazard problem in unsecured retail lending - Provision of deferment of EMIs will create a major moral hazard challenge for unsecured retail lenders like Bajaj - expect muted growth with focus on collections for foreseeable future ala MFIs during demonetization. MFIs to be further hit due to dual whammy of moratoriums and lockdowns impacting collections - geography will be key - virus hotzones vs others. SME focused lenders to see huge upheaval in credit quality. Great time to be a gold loan provider - able to rapidly upsize limits of existing customers due to already having collateral which is rising in value.
  6. Dairy as big winner - sector has been foremost in continuing operations during lockdown - delivery at home brands like Pride of Cow etc will benefit from customer fulfillment - due to shutdown of B2B and HORECA sector, input prices have also crashed - good balance sheets to win big here as other FMCG stalls
  7. Selective logistics players - those playing in the agri / pharma value chain ought to benefit by continuing to be able to operate - several other competitors will face tremendous stress and likely be knocked out

Some first thoughts on second order effects on VC funded companies

  1. Possible death of some fast cash burning companies dependent on VC funding. Others who manage to survive will have to reduce burn rate.

A) We Work

B) One Web

C) Oyo- who has given minimum guarantee to most of the hotels it has partnered in India.

  1. Slowing down investments by Softbank and others

  2. Faster than expected price rationalisation of product and services in B2C businesses dependent on funding (Possibly Zomato, Swiggy, Uber, Ola).

Impact on white collar job market - Some of these companies are aggressive hirers for B school passouts.

Impact on unskilled and semi skilled job market- Incentives rationalisation of drivers, reduction in demand of delivery personnel.

One has to think further on the direct and indirect impact on Listed Indian companies, for eg: We work is a major tenant of Nesco, Companies like Quess Corp are dependent on contractual jobs created by many of these companies.


My take on this medical crisis affecting global markets:

  1. Issue - Rapid global spread of super-infectious new strain of virus i.e. Covid-19 without any known medical cure

  2. How bad is coronavirus?

  • Roughly 70-80% of people with coronavirus have mild symptoms and can see out the illness safely quarantined from home without any need for hospitalization, etc.
  • Global and local observation - 1-3% rate of fatality in evenly distributed age-based demographies
  • However, Covid-19 causes severe complications for any persons with pre-existing illnesses and has much higher fatality for elderly population
  1. Action by India - Preventive lock down of entire country leading to shut down of real economy

  2. What can happen from hereon for India? Any of the below

  • Government extends the lockdown beyond 15 April to 30 April / 15 May - Med Probability This outcome is anybody’s guess and I don’t have a convincing argument yet why this will happen. Also I have an investment perspective on markets and not a trading perspective, a further 15 - 30 day lockdown will not materially impact long term winning businesses

  • No further lockdown post 15 April except international travel due to steep decline in rise of new cases and > 90% recovered - Low/Med Probability because India’s low testing appears to be the main reason behind relatively low number of cases

  • Vaccine cure for coronavirus in around 15 April - Low Probability generally takes 1-2 years

  • From 15 April - Government gradually opens up parts of the country especially rural hinterland basis current understanding of spread in state to state - Med / High probability
    Given the migrant labourer crisis and India’s average per capita income - I sincerely doubt the government would be able to mandate a lock down of the entire country for much longer than 1-2 months as there would be a severe strain on the financials of the government/states and how effectively can the PDS system be implemented to the last mile will remain a challenge and worry. A couple of months on, it will soon become a fight for survival of the poor on a daily basis just relying on the Govt support whose finances will be in shambles. Hence, continued lockdown of the country beyond April 30 seems quite improbable. Even if lockdown is removed from 30 April, a further 15 - 30 day lockdown does not materially impact long term winning businesses

As per my reasoning above I expect the below 2 things:

  1. Government will gradually remove the lock-down from April 15 or April 30 (latest) onwards
  2. International travel will remain banned for the foreseeable future upto 3-6 months.
    There is only and only 1 way I see the situation on travel can improve quickly and @madhug has mentioned a fantastic point above on mandatory pre-screening of travellers. Given the rapid advancements in technology on Covid testing in 1 month itself - (from getting Covid test sample results in 1-2 days to 5 mins now), there could such an advancement in the next 1-2 months that Covid tests could be performed instantaneously / on the spot. And I’m pretty sure all countries across the world will mandate all international passengers be screened for Covid-19 at the airport itself. This I expect will be a global practice whenever the technology allows and appears to me as the main way to tackle Covid-19 and reduce the travel-related restrictions

Educated Guess and Market Prediction: If the global markets were not so co-related i.e. India would stop dancing to the tunes of US markets, I’d be very confident of 7500 being very close to the bottom as I see the lock-down being removed by end of April. However, since the correlation is so high - both India’s lock-down removal and how the US coronavirus plays out play an equally important role in how much lower markets will go from here. Also markets seem to have priced in quite a lot of uncertainty already given the steep declines of 8-10% on daily basis have not been seen in the past week. Given all of this - I expect 7500 to be within 10% of the bottom unless there appears much more dramatic bad news which the markets have not factored in.

Now if the above were to play out, how can we take advantage from this market crash? I’ve tried to categorise the different sectors based on the expected length of disruption caused by Covid-19 pandemic:

  1. Limited/Temporary Short-Term Disruption businesses - FMCG, Consumer Discretionary, Pharma, IT, Chemicals, Insurance, AMC, Media - look for zero debt companies, demonstrated 1.5-2x GDP growth with track record of high return on capital employed (>25-30%) and market leaders in their industry/business - , etc. Some of these businesses are also the least affected by this pandemic and should consolidate more market share if some of the smaller players get wiped out in this crisis. Doesn’t matter large / mid / small cap - if you’re invested in businesses with these characteristics - you’d have already observed that they fall in-line / less than the market irrespective of the market capitalisation.

  2. Temporary Short-Term Disruption - Leveraged financials? - Everyone keeps talking about that these are the first businesses to suffer because of their leverage and any problem in the economy is definitely one financial lender’s problem or another. Now, you think…and tell me…can India’s 5 trillion $GDP target be met without a few large financial behemoths emerging from India? We all know the names - and they are now 20-50% off their peak as well. You’d be a brave man if you’re thinking a totally different set of financial leaders will emerge out of nowhere and take India to 5 trillion $ GDP. I don’t know where is the bottom but there sure as hell is a bottom for the HDFC Banks, Kotaks of India and then a very very long way to the top!

  3. Temporary Longer Term Disruption - Travel and Tourism -

  • Should not invest in travel/tourism related businesses till we get a solution to the travel problem - it could be 1/2/3/6 months. Any businesses related to Tourism / Large Gatherings of people are likely to have an especially rough time wrt share prices - Airlines, Hotels, Casinos, Amusement Parks.
  1. Now what not to touch with a barge pole -
  • Companies with promoter pledged shareholding or high debt or high receivables or 3rd rung leveraged financials


  1. If you’re looking to invest in 1st category of companies - I think a 35% Nifty correction from the top is a significant one which warrants reasonable sums to be deployed now and henceforth on further 5% correction each. Individual companies may have fallen less or more - we can never guess one day which company might rise / fall by how much.

  2. If you’re looking to invest in leveraged financials - given the high-risk high-beta nature of these companies - this is already a very good opportunity to get into ONLY the market leading Indian private banks and NBFCs at saner valuations.

  3. If you’re looking to invest in sectors severely affected by Travel and Tourism - I think it would be better to follow a wait and watch approach till we get a solution and travel starts picking up around the world.

  4. If you’re looking to invest in this category of companies - take your money and run, run, run!


Some thoughts to add… This crisis would have maximum impact on businesses either hugely dependent on unskilled labor or immovable Machines that needs operation by many skilled/unskilled labor or fulfilling clients/customers discretionary needs (double whammy would be if they fullfill this need with borrowed liability) or have a very tight cashflow/inventory cycle the minutest disruption to which is intolerable.

Now, which ones would come out of crisis… would be those demonstrating leadership, preparedness, flexibility and innovation in those disrupted areas, which are eventually an inherent need of society and are hugely scalable.

  • Insourcing of manufacturing of critical items
  • Knee jerk anti china campaigns / solutions across globe
  • Diversification of supply chains removing single country dependency
  • International Travel to Europe

Disruptions and Opporutunities in Micro-Lending, and its effect on dependent sectors

In couple of months after the lockdown ends, new clients won’t be added. Ground zero will be touched first. Due EMIs will be sought, and damage assessment will be made.

Low PBv stocks may not make it: Equitas, Indostar and unlisted ones. I am equating low PBV with low “quality” of the underlying business.

Good businesses will face setbacks: pressure from Political parties to bear losses, willful defaults.

It is absolutely clear that lofty valuations will normalize, and may even go into discount. Like in case of Bandhan Bank.

Bajaj Finance was trading at lofty valuation owing to its future growth. Now, in absence of growth prospects for atleast next 2 quarters it appears a P/Bv of 6.20 is unsustainable. However, there is a silver lining, due to this calamity mediocre businesses will lose ground and the sound-ones will cover it when the going gets good.

The online business will be hampered. Micro-Financing, as a facilitator, will be on the back-foot causing the sales to drop. As a result, Consumer Durables like Voltas, Whirpool, Symphony will take a direct hit.

There are reports of MSME businesses being in trouble, a section to which Sarkarri Banks, HDFC Bank and Kotak Bank have sizeable exposures. But again, Sarkari Banks will lose ground and their private counter parts will cover it in good times.

I see many people blindly switching to Pidilite, but I feel due to real estate slump and the stocks lofty valuations a decent fall is on the cards.

Finally, due to de-migration of labour, agriculture might see a spike Because a labour when he goes to his home town, he resorts to agriculture for sustenance.


Orderbooks, specially from government, can be very questionable going forward in the next financial year. Prima facie it looks that the government may not have enough to spend on infra as much as previously planned. However, these things have a life of their own and the government can actually just decide to invest in large scale infra and cut somewhere in a form of Keynisian intervention. So, net net, difficult to say.


If we look forward few qtrs I think temporary staffing is going to rise due to this uncertainty. Many businesses would not like to commit to hire directly and would opt for temporary staff so that in business downcycle and during economic crisis they can fire easily without getting into major trouble.

Temporary staffing is also play on delivery service spiking and more people will be hired for the delivery. Recently due to spike in customers flocking walmart, walmart has hired 150000 more temporary staff.

Also, there are news that many manufacturing business are readying to diversify to other countries including India. Major manufacturing business would like to hike temp staff due to huge labor law issues in India including Union that get blackmailing power in case of business downturn and wage issues.

Two companies which can benefit are Teamlease and Quess Corp. Both are asset light business and generate reasonable ROCE.

Disc - Have no position in any of the stock mentioned above.


Wonderful post for me. Few areas for me to ponder more on -unsecured retail lending; certainly need to factor these effects in for a couple of core holdings of mine, and attempt to think more clearly than before. Dairy as a big winner (what after the shorter term advantage wears off, if it does), Selective agri/pharma focused plays - all good actionable work areas. Lets collaborate more on these.

Also noticed some great posts from you in NBFC dissection space. Would certainly call you in for the ongoing work planned on creating a NBFC/Banks Deep-Dive Template. @rupeshtatiya, please invite him in to your work area on NBFC/Banks dissection

Meanwhile, would you mind updating the “About Me” section in your profile page, as much as you can (within your constraints set) to help everyone appreciate better and encourage you better for even higher-order contributions to the community.


Equity strategy propounded by HDFC Securities


The above report is a must read. The numbers are staggering. It is an honest assessment of the situation at hand and it further extends the views I have held in the post above:

Summary of the report:

  1. This report, in its percentage table, is expecting twice the correction in most sectors if the lockdown is continued.

  2. In BFSI, sticking with leaders (better funding due to provisioning) for investment is recommended. The author probably sees a lot of pain.

  3. Micro lending and Insurance are worst hit. Worst case PAT change for Max Financials is -41%

  4. In both scenarios, Consumer discretionary stocks are taking a bad hit. High PE stocks like Jubilant are in for a deep correction, which was expected.

  5. The Energy sector too is seeing a slash of 57%. This leads to an important conclusion: Nifty 50 leaders are

HDFC Bank @ 11%
Reliance @ 10%
HDFC @ 8%

Comprises around 30%, as per this report, are expected to go in deep red. This might make Nifty reach 6000 if lockdown is extended, which is going in the direction that Mr.D hinted.

Short Term: In short term, the lock down and global mess going to affect almost every industry.
Medium Term: Companies across the globe will focus on revival plan and change their business model to avoid such an impact in future.
If we succeed in finding what has caused the impact on xyz nation/industry/company, we should be able to guess the possible actions by the affected nations, sectors and companies.

  • What caused the impact?
    • Few general causes I could think of
      • Over dependence on outsourcing.
      • Over depending a single geographic location for raw materials.
  • What could be the action?
    • I believe this will force companies to go for a more distributed model in terms of procurement (raw materials) and operational (IT / Infra / Workforce) dependencies.
  • What will be second order impact that will be created by these actions?
    • All b2b sector leaders will lose a pie of their share to others.
    • China will lose its pie in manufacturing sector.
    • India will lose its pie in service sector.

Just putting together my mind map. If makes sense please let me know will try to find answers for any industry or a global leader who has been impacted a lot by this COVID


I don’t think there is going to be a very large disruption if your time frame is 5-10 years. Yes travel and tourism is going to be very hurt and leveraged players there are going to go bust. Yes, working remotely is going to find favor where it is possible. People’s concern with hygiene is going to go up in the short-term. In the long-term, perhaps not so much. We weigh cost-benefits on a rolling basis and not absolute basis. In other words, we will be hygienic, when necessary.

Coming to govt. money and migrant labour - Let’s take a step back and see what macro changes are somewhat long-lasting from this crisis

a. Crude price drop may be here to stay for awhile. This might be because Saudi/Opec and Russia were in a iterated long-term prisoner’s dilemma where currently both players have played the ‘Defect’ card. This takes awhile to get back to normal and for the co-operation to come back (using constructs from Game Theory) which could mean lower prices for sometime (Demand wasn’t holding up the price lately, as much as cartelisation was)

b. (a) leads to this naturally. This is a bonanza for us. We roughly import 3 lakh Cr and export 2 lakh Cr, leaving us a trade defict of 1 lakh Cr roughly. Of the 3 lakh Cr. imports, about 33% are crude and related products. A 50% cut in its price means about 50k Cr saved for us - per month. (This is still first-order thinking - what happens if our exports shrink due to drop in world demand and a fallout from globalization to localisation)

c. Lets get to fiscal deficit from trade deficit. The govt. has increased excise duty smartly and has not passed on benefits. This leaves a lot of space for the govt. to maneuver. It also has a supportive central bank and a crisis - All giving it the license to go all out to spend.

So govt. has a lot of money to spend and the license to spend and there is a lot of labour available and energy from crude available for cheap. This might mean a kickoff of large infra projects (Can only be played via commercial banks, zero debt infra ancillaries if you are conservative)

Then there is the low interest rates, low inflation and possible high growth (Goldilocks economy) in the horizon fueled by all the above. It may not be tomorrow or next week but could play out after a year or two. This is the natural and high-probability outcome of a big crisis. This is the only time I am willing to make an exception to buy financials because that’s the only time they are available at realistic valuations (sans fiction, multiplied by fiction).

Recovery is not around the corner but its inevitable from a 2 year perspective. Market has rushed to factor in the near-term disruptions but may not have factored in the time required for recovery (the 1-2 years), now this may never get factored in, if the market sees a recovery as inevitable and is willing to wait. World is flush with cash in a near zero interest rate environment and will take any growth it can. All we have to do is not screw up poorly.


What does this crisis change:

a) Debt which was anyways a taboo will be considered even more riskier. Raising debt will be riskier, investors perception of debt companies will be riskier. Even manageable levels of debt will be hated. Demonetization followed by ILFS and other bad debt followed by Covid19 have all created significant liquidity issues in the market. AAA rated corporate debt (including NBFC debt) and Bank debt will remain significantly cheaper compared to sovereign. All of this mean that financials will get derated and may take some time to come back to their old glory.

b) Covid19 will take precedence, followed by Agriculture. This will result in a significant fund flow to the social sector and capital formation will take a back seat. India is going through one of the worst unemployment crisis and this will be accentuated significantly because of the job losses due to Covid19. Government on its part can look to alternatives like universal income further reducing scope for any infra push. Sectors like cement, infra, cap goods and most India specific sectors in infra will face significant demand headwinds.

c) The current scenario of a loose fiscal with -ve growth, a loose monetary policy will be inflationary in nature. We are most likely heading into a stagflation kind of scenario. The current lowering of interest rates in my opinion is a temporary relief with inflation rising monetary tightening is bound to happen. This will add to debt woes mentioned above.

d) Healthcare sector post the crisis could see significant boost by government mainly for capacity augmentation. This could mean special grants/subsidies/tax holidays to the private players in hospitals. One can already see the +ve approach in pharma API and other segments.

e) Higher duties on fuel (non inflationary as long as prices are down), higher import duties on discretionary, higher duties on alcohol and tobacco, higher GST on discretionary will be some of the easier sources for tax mop up.

f) The crisis has brought fwd the faultlines in international relations. The west is worst effected. Looking at how various nation states have acted specifically US and EU nations, Globalization will be under attack. It is almost clear in times of crisis every nation is left to fend for itself. The EU project and Euro itself can be under tremendous stress as nationalism start getting more and more traction. This could also mean that a lot of smaller/weaker nations will look to China to help them out both in the crisis and post crisis to re build the nation.

Beyond the short term: Short term there are no marks for guessing, a lot has already been priced in, there can still be some outliers beyond the usual like commodities where supply side is getting far more severly disturbed than the demand side things to track here are ferro alloys. I also see agro chem being one of the least impacted sectors. More important now is to look beyond the short term and see when a new base sets in for various industries. Domestic consumption mainly auto should be the next (also evident from the post GFC data) and that gets followed by other segments.

As I have mentioned above there are too many uncertainities right now, for example if state and central govt. clearing dues if RBI provides extended line of credit can be a game changer for infra sector. Oil normalization ($50) up can impact inflation, fiscal deficit and CAD. One must be nimble and tread cautiously. anything beyond 6 months post Covid19 is unchartered territory (unless you are in FMCG…).


Most of these are at their median PEs, so is Nifty.
I think Nifty starts becoming cheap below 17PE, around 7540, which is near about the current swing low.

Most of the mentioned stocks were the darlings of the market as they had growth, Pedigree and we’re low debt. Now with no visibility of growth the market has Re rated them, and yet look expensive, because one wonders how to pay 40PE for 5% growth (Page). Or 60 PE for a life insurance business with Covid in the background.

Plus, the EPS has not changed. It will take couple of quarters for a truer PE to show in print.

Choices are tough. One wonders when will the growth return, will history repeat. Truth is, it won’t for most.

Edit 1: To get a proper view, we must reduce the EPS before hand and then consider PE. For ex. currently nifty EPS is 443. Reducing it to 400, and calculating 15PE, Nifty comes to 6000. That should be the true low.


11 posts were split to a new topic: Actionables 2.0: Scuttlebutt on Farming/Migrant Labour/Economic Activity

My views on the current scenario :

I don’t think a lot of disruption will have happen on a longer time frame. All most all sector will have short term pain but travel , tourism will hit hard for a longer duration.I think companies which caters to branded segment will take a hit at least for 2 years as consumption spending will be reduced and focus will be on saving,but it will be short term change in mindset. If a major job crisis happens ,then the pain can sustain for longer time.

  • Companies like bajaj finance, Titan, Starbucks, sbi card and other companies catering to branded segment will be hurt the most and accordingly we have to value the company now .I believe they will not sustain the high valuation with a 2 year view.

  • Even if corona situation improves still govt will advise to maintain social distancing, so impact will be on irctc, pvr , inox & wonderla and longer period of lock down can hurt most.

  • Post COVID-19, we can one see significant permanent change in the addiction towards digital content and social media. All the OTT platform will be benefited the most. I don’t see any OTT Platform companies listed in India. So CDN (content delivery network) provider can be good proxy play. Tata communication (TCL) is one of the service provider who has seen huge growth in CDN network.


India has been a darling of sovereign funds for some time now driven by it’s growth potential, positive demographics and continued economic development prospects. There are many articles which covered this. Below link is one of those.

But now the tables have started to turn, forced by unplanned expense due to Corona some countries are looking to liquidate their assets from sovereign funds. Norway is one such

Could we see more of this in coming days ? Could this be a second order effect which will impact the markets further ?


Thanks for the nice articulation on several issues.
I have a different take on this point specifically. With economy grinding to a halt, and likely low to negative growth post lockdown lift off and delayed re-starts, its unlikely the government will have much money to spare even with the Oil bonanza. All the money that it can spare, will go towards social subsidies, and these are going to continue for a while. Govt has (had) no money to pay GST share to states, had no money (nothing released yet) for various intervention schemes already announced like the Real Estate last mile support fund (announced last Oct/Nov?), had not released for other initiatives announced later too (will check back and list), forget about new badly needed interventions for MSMEs …need to step away for a bit…

So infra spending, that too in a big way looks highly unlikely. Though its part of Govt’s main agenda, and if they manage that, will be a big plus in settling the migrant labour back.