The other side of chaos | Economic Times

Rising inflation in a low-interest-rate regime, soaring stock indices amid job losses and a shrinking GDP — 2020 will go down as a study in contrasts. Amid economic imponderables and personal anxieties, many investors may have once again missed the sudden, often inexplicable, market rallies. There were hints of chaos brewing when we published the last ET500: a Dalal Street seemingly unaffected by the pain on Main Street and slowing capex. A year later, the story is different: from gloom and doom as the pandemic took hold and then rising hope of a sharp turnaround amid imminent mass vaccination.In such a milieu, the lure of quick money through risky bets may seem irresistible. But make no mistake, when growth is shaky, scout for the value — companies with the agility to change tack and with strong corporate governance cultures may stand a greater chance of sailing through the chaos. As 2020 comes to a close, investors may ponder a list of all-weather companies, sectors that lagged behind in the rally, and the uptick in segments such as housing that could lift the fortunes of ancillary companies. It was a year when traditional assets such as that old favourite, gold, made a return. Also, unconventional bets on Bitcoin and other cryptocurrencies captured the imagination of many urban investors. While the lockdown swamped the economy, there has been a big drop in daily Covid cases and a steady improvement in the percentage of recovering patients in the past two months. The good news buoyed the market despite slower consumption after Diwali. Chances are the rub-off effect may linger in the first half of 2021 if the budget addresses slowdown concerns. But with the market running ahead of fundamentals, analysts are cautious.“India is the regional economy hit hardest by Covid, but its equities were the best performing among vulnerable markets, and valuations are lofty by global standards,” said Citibank in its 2021 global outlook report. “We are more cautious on India despite its prospects for economic recovery.”After losing over 38 per cent between January and March, the benchmark Sensex has gained nearly 80 per cent since, surpassing the peak touched at the beginning of the year. Not too many are betting on the government stepping in to boost demand in a big way. Few believe the Reserve Bank of India can be the sole architect of a turnaround, though a vast ocean of liquidity has lowered mortgage rates and corporate borrowing costs. How far can the central bank cut rates? “As growth recovers, inflationary worries could rebound. We no longer expect a 25 bps repo rate cut in 2021, and see the repo rate remaining at the current 4 per cent for a prolonged period,” said HSBC Securities. As the pandemic threatens to change the way people work, think, spend and save, these are testing times for investors trying to figure out the method in the madness.