Teji Mandi Newsletter: Taking stock of the financial situation amid the coronavirus outbreak in India


Last Hour Sell-Off Brings The Bulls Back To Square One

The Sensex and Nifty recovered from the day’s low to surge to a peak gain of 3.5% during trading hours. However, the last hour sell-off reduced the gains considerably as the market’s expectation of an economic package from the government has not yet been met. Both the headline indices gained 2.50% each; mid-caps also gained 1.09%. The small-cap index, however, closed 0.98% down.

Infosys (up 12.03%), Adani Ports (up 11.53%) and Britannia (up 10.61%) were the major gainers of the day. On the other hand, M&M (down 8.32%), Grasim (down 7.65%), and IndusInd Bank (down 7.16%) were the top losers of the day.

Is the market finally close to a bottom?

Since its peak in mid-January, the Nifty has seen a correction of almost 40%. The average drawdown during the past “major corrections” in Indian equities has been 29%. Major corrections in the past have, on average, bottomed out at a price to book ratio of 2.5x vs 2.0x currently.

Almost 83% of BSE 200 stocks are trading near their 52-week lows, almost matching the global financial crisis (GFC) in October 2008, during which the same number was at 84%. India’s market cap to GDP ratio is currently near 50%, hovering near lows of the global financial crisis. Since mid-February 2020, FIIs have sold near US$7.3 bn of Indian equities (0.3% of market cap). Past peak to bottom FII outflow episodes since 2014 have typically ended near these levels (0.3% of market cap).

FMCGs step up to meet increased demand; consumers cut discretionary spending:

With a persistent lockdown across India, many FMCG companies are witnessing bulk buying from consumers. With people preferring to stock essential food and hygiene products, HUL might see increased revenue growth due to higher sales of soaps, handwash and tea as well as deeper distribution. The overall margins of these companies are also expected to improve due to lower crude oil prices.

Nestle is likely to maintain its revenue targets with products such as noodles, chocolates, and coffee. Godrej Consumers and Britannia will benefit from the increased consumption of hygiene and packaged foods. Falling crude oil prices will positively impact companies like Pidilite, HUL and Dabur, who have a substantial part of their input costs linked to this price.

Consumers cutting down on discretionary spending could impact companies like Jubilant Foodworks, Titan and United Spirits negatively.

Content-driven cinema, Hollywood collection emerges as a new lifeline for Movie exhibitors:

Impressive box office collections and no visible impact of OTT platforms on movie-goers augers well for movie exhibitors. The emerging trend from the movie industry indicates that the number of movies into Rs 100-200 crore club has more than doubled over the last two years, helped by the proliferation of multiplexes, good content and broad-based demand across weekends.

The trend also suggests that Bollywood no longer depends on big stars to sell movies. Well-made films with good scripts, even without a star line-up, are drawing large audiences and earning good box office collections. Hollywood movies have emerged as a significant source of revenue for movie exhibitors.

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