Strange times to invest in

in hive-175254 •  5 months ago 

I live in India and our government has taken a starkly different response to advanced economies of the West. While most people who lost their jobs in the west managed to get some compensation from the govt, in India that is not the case. The Indian government came up with a loan program that they called economic stimulus and in reality, as expected, it did little to stimulate the economy.

Central banks in the West have been printing money and are ready to keep near 0 or negative rates till they reach their inflation targets of 2%. 2% may be an unrealistic target, as technology has proven to be deflationary. Moreover, the measures of inflation for the govt are far from the inflation that impacts consumers. Rents go up, prices of food go up and so do most discretionary items but that does not truly gets measured. Anyway, centrals banks in the west have flushed the markets with liquidity and the result is S&P, NASDAQ and DJI averages all hitting all time high.

India however it an entirely different market. GDP growth is expected to be around -10% for the current fiscal year. In the absence of an economic stimulus, bringing GDP back to pre-COVID levels will be a slow, and arduous task. Overnight, or even within a year (mostly involving lockdown), India will not be able to meaningfully increase its share of manufacturing globally. After November, may be US retaliation of China will also subside. A lot of my friends haven't lost their jobs. What has happened is, salary has remained intact, people are spending less and are seeing an increase in savings. May be that market is flooding the stock market and so is liquidity from overseas or just the expectation of higher FII investments. I can understand why NASDAQ or Gold are up. I did buy Gold during the lockdown. People at homes are heavily reliant of e-commerce. I can see why Jeff Bezos is now worth $200 bn. What is happening in India?

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The above graph shows how S&P 500 is already at an all time high. Indian markets are not. Probably shows the same confusion in the markets as in my head. NIFTY is still about a 1000 points (~10%) away from all time highs. Most stocks are up, despite any govt infrastructure spends or people buying cars because they do not want to travel in public transport. As I was saying, most of my friends haven't lost jobs. Most have not seen salary cuts. People with small businesses are impacted. Hospitality, travel, tourism, banking, infrastructure, auto.. all industries are badly hit. The contractual staff is being laid off. Factories are not operating at full strength. Yet, even though NIFTY is far away from ATH, it is still recovering. To me this is very strange.

I am being very watchful in the markets. Only buying debt free companies as earlier, some financials that have demonstrated an ability to raise capital and have excessively cleaned their books in the past and market leaders. I still expect markets to pull back. COVID cases are rising again in India, although deaths are still under control. However, deaths are a lagging indicator. I think while people are fed up with lockdown, there may come a time when they choose to lock themselves down, as opposed to being forced by the government. The government has not responded with anything tangible. I think there is scope in the markets but I think treading with care and caution is important here. Let me know what you think.

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