The calendar year 2020 has been a complete washout so far, drawing a comparison with the great financial crisis of 2008-09. A glance through the currently prevailing valuation ratios points to a rare buying opportunity for long term investors.
A read through the most important books ever written about long term investing suggests that it is this rare combination of extreme fear and attractive valuations that provides a good foundation for healthy long-term equity returns.
As on April 3, 2020, The Nifty is trading at a trailing price to earnings ratio of 16.2x, the lowest in 6 years. Market-cap to GDP Ratio is at 54%, a level only last seen during the global financial crisis. All this indicates that it is a good time for investors to start gradually deploying their capital in the market.
On a day to day basis, however, the market continues to plummet. Today the Sensex closed 2.39% down, while Nifty lost 170 points at 8,083.80. Sun Pharma (up 9.58%), Cipla (up 8.57%) and ITC (up 6.91%) led the gains, while Axis Bank (down 9.26%), IndusInd Bank (down 8.49%) and ICICI Bank (down 7.85%) dragged the market down.
Insurance: History suggests interesting times ahead
An interesting study of insurers in China, Saudi Arabia and South Korea during epidemics such as SARS (CY2002-03) and MERS (CY2013-14 and CY2015) points at an interesting time ahead for the insurance sector. The study suggests that demand for term and health insurance picks up during these times.
Life and health insurance companies will likely be the key beneficiaries if a similar trend emerges in India as well. However, ULIP volumes could decrease due to uncertain market behaviour.
Key takeaway: Epidemics usually prompt people to buy more life and health insurance policies. This could be beneficial for the life insurance companies. But we would have to wait and watch for growth in ULIPs and protection policy numbers.
IT: First half of FY21 to see the serious impact of current lockdown
While the Indian IT companies could see some loss of revenue in the last quarter of this financial year, the majority of the impact of the coronavirus crisis will be felt in the first half of FY21 as companies are expected to come to a complete halt.
A strong USD could still cushion the impact, but lack of fresh orders, as well as delay in project execution, could create the bulk of the damage.
Key takeaway: There could be near term headwinds on IT deal flow. However, over the long term, IT spends will only keep increasing with the adoption of technology and digital transformation practices.
Teji Picks of the Day
NSE: ONGC – Successfully hit the target price of INR 68.75
NSE: ITC – Successfully hit the target price of INR 177.90
For more insights and picks like these, please visit here.
