Validus Wealth

Monthly Investment Perspectives April 2020

April 2020


Pandemics are a rare once-a-century events forcing the World to look at historical archives for an effective strategy to deal with it. Well, the solution also turned out to be equally primitive – complete nation-wide lockdowns to reign in the spectre of the invincible and invisible novel Virus. Soon, the public health care crisis morphed into an economic crisis of unprecedented levels. Supply-chain disruptions turned into demand destructions annihilating well established businesses which has led to massive layoffs and can snowball very quickly into a huge credit crisis. World leaders do not mind working together against a common enemy for now as x, but post normalcy we may see a new geo-political axis getting formed. Total infected cases have now reached the 1 million milestone and rising mortality rates have brought the health infrastructure shambles to the forefront. This may lead some to believe this is END OF THE WORLD, but we prefer to be more realistic and respond THIS TOO SHALL PASS. Stay home, stay safe and stay invested.


Bears gave a tight hug to the equity markets as panic gripped the investors’ minds. Markets take a long time to go up, but they can fall under their own weight as was seen in March. As the Covid-19 contagion spread and shifted epicenter from its source in the East to the West, freefall in the equity markets also followed in its tracks. US and 3 European countries now lead China in infections tally – rather 7 in top 10 are now developed markets. The fear gauge (volatility index) spiked across the globe as investors failed to ascertain light at end of the long tunnel to recovery. Many research agencies now forecast an unthinkable-a-month-back global recession in 2020 of a magnitude deeper than 2009 global financial crisis. US Initial jobless claims at a cumulative 10 million in last 2 weeks have shattered all records with unemployment rate now estimated to rise above the Great Depression period.

Looking back, China and India (the major EMs) acted swiftly to announce shutdowns which have sort of contained the virulent spread. Europe and US (major DMs) were late to the game and are now suffering from their inaction. The former also benefit from larger domestic consumption markets vs the latter and can rise from this crisis earlier, if no new mishaps occur. Though, DMs have a better fiscal firepower, Valuations are also not in their favour. Remain Overweight on EMs against the Strategic Allocation to EM.


The world has lived in an ocean of liquidity for the last decade (akin to a morphine shot) and is now finding it difficult to let go of it. So, as soon as a new crisis came on the horizon, all central banks responded in a way they knew best – easing rates and bolder asset purchase programs. That’s exactly what the US Fed did with its promise to provide infinite quantitative easing and corporate bond purchases (for the first time), in addition to bringing the Fed Funds rate to zero. Sovereign bonds lost their hedge as they too exhibited higher volatility. Central Banks will have to stay accommodative beyond 2020, not just till spread of the virus is contained, but global growth is back on a firmer footing – which seems a distant dream at least as of now.


Even as the World was dealing with a once-in-a-lifetime health care crisis, Saudi Arabia and Russia engaged in an Oil price war – not just doing away with earlier production cuts but rather increasing supplies and that too at discounted prices. With economies under lockdowns and travel bans in place, Oil fell to 18-year lows becoming a survival issue for US shale producers. Last we checked Trump might broker a deal which will put some life into Oil. We prefer being tactically Overweight on Gold to hedge portfolios against such unforeseen black-swan events and to smoothen the tumultuous ride.


If we look at the brighter side of the Covid-19 mayhem, from a macro economy perspective, India has a chance to rise and replace China in the global supply chains. India has got a good consumption demography, stable reformist political leadership and good entrepreneurial zeal which have created great companies so far – in line with China but with better English language proficiency. India’s Ease of Doing business ranking has been improving, FDI capital flows are also relatively robust vs Asian peers, but bureaucracy needs to buckle up and do more effective policy-making to attract global manufacturing giants. This will not only provide employment to the mass pool of educated workforce but also provide them the technological skills to climb the innovation ladder. Oil at 2-decade low acts as a cherry on the cake as India imports 85% of its crude requirements.

We agree, India is not de-coupled from the world and will have to face its share of disruption. Also, post national lockdown, major domestic activity has come to a standstill except essential services like healthcare and food. Restarting the economy will be a tough job. Auto sales for the month of March have collapsed anywhere between 40-90% on YoY basis. The 8-core industries index for Feb-20 reported a 11-month high of 5.5%, but Mar-20 data will hold key as real pain began then. FY21 GDP growth is now forecasted to be in the range of 2-3.5% with downside risks because of the evolving dynamics.

Business shake-up is imminent in every crisis. We envisage 3 scenarios post this crisis – discretionary spending to come under immense pressure, survival of the strongest companies and localisation to be in focus.


Markets are composed of only 2 emotions – Greed and Fear – and we believe it is time to be selectively greedy when everyone is fearful. Fear has rather become a bigger virus than Covid itself. The silver lining is, this massive fall has been a leveller between good and weak businesses due to relentless sell off, giving a once-a-decade opportunity (to be grabbed with both hands) to reorient portfolio with companies having role to play in the futuristic growth. One should bear in mind that markets always move ahead of the economy and will price in crisis and move on to capture future recovery. Thus, investors can’t look & wait for resolution of the issues that led to market fall, as risk of losing opportunity is very high. It’s time to be rational and long-term patient.

Equity Earnings Yield has become very attractive relative to bond yields and, on absolute basis too, valuations are now close to -1SD. The markets have corrected at warp speed and we believe the heightened volatility will keep giving portfolio building opportunities at regular intervals. Hence, we have taken a tactical OW call on Equity vs Bonds and believe the risk-return and macro dynamics favour Large Caps over Mid Caps for potential recovery.


RBI has again done the heavy lifting and ticked the right checkboxes by unleashing a liquidity bazooka – repo and reverse repo have been cut to all- time lows of 4.4% and 4% respectively, CRR has been cut to 12-year low of 3% and 3-month moratorium (not waiver) has been granted for term-loan repayments. A total of INR 3.74 lakh crore of liquidity flush in just one meeting should go a long way in providing support to yields. RBI refrained from providing inflation and growth guidance but did mention that stated past GDP outlook is at risk. RBI continued with its active dynamism and using selective tools from its arsenal – TLTROs and OMOs – to do more than just rate cuts. The Govt’s. reduction in small savings rates will also now ensure effective rate transmission. But Corporates and Banks risk appetite is yet to be tested.

Tax revenues and disinvestment proceeds have again missed revised estimates which along with the recent fiscal stimulus for the poor masses can lead to wider than anticipated fiscal slippage for FY20/21. 10Yr G-Sec yields can come under pressure due to supply-side issues as well. Thus, our caution on G-Secs continues. Credit Risk Funds are a no-go zone in this elevated risk environment and ultra-short/short duration Banking & PSU Bond Funds, Corporate Bond Funds, Roll-down Funds are preferred choice.


The en-masse selling by FIIs from India Equity and Debt markets (almost 20- year high outflows in a single month) weakened the INR substantially this month. RBI did intervene by way of USD-INR swaps but the flight to safety weighed heavy. Oil price-crash will lower import bill and inflation (to the extent retail pump prices are lowered) which will provide much-needed support to INR. Dollar index acted quite volatile in response to Fed actions and we believe the deluge of US dollars in the financial system will keep put a cap on its strengthening. Hence, we turn Neutral on USD vs INR.




Covid-19: CoronaVirus Disease 2019; US: United States; CBOE: Chicago Board Options Exchange; GDP: Gross Domestic Product; EM: Emerging Market; DM: Developed Market; OW: Overweight; US Fed: United States Federal Reserve Bank; bps: basis points (100 bps = 1%); YTD: Year To Date; CSO: Central Statistical Organisation; -1SD: One Standard Deviation below Mean; FII: Foreign Institutional Investors; TLTRO: Targeted Long Term Repo Operations; OMO: Open Market Operations; G-Sec: Govt. Security; PSU: Public Sector Unit; RBI: Reserve Bank of India; USD: United States Dollar; INR: Indian Rupee.


This document has been prepared by Validus Wealth Managers Private Limited (“Validus Wealth”) exclusively for information and discussion purposes only and for the sole use of the recipient. This document may not be reproduced in part or full without the prior written consent of Validus Wealth. Persons into whose possession this document or any copy thereof may come, must inform themselves about and observe any legal restrictions on the distribution of this document and the offering, sale and/or distribution of the products and services described herein. Validus Wealth cannot be held responsible for any damages or losses that occur from transactions and/or services in defiance with the restrictions. The information in this document is not intended as an offer or solicitation to buy or sell securities or any other investment product, nor does it constitute a personal recommendation. Nothing in this document constitutes investment, legal, credit, accounting or tax advice or a representation that any investment or strategy is suitable or appropriate to the recipient’s individual circumstances. This document does not constitute financial research. Opinions or views mentioned herein are as at the date of issue and is subject to change without notice. To the extent permitted by law and without being inconsistent with any applicable regulations, Validus Wealth and its promoters, directors, employees or any representatives shall not accept any responsibility for any direct or indirect or consequential loss suffered by any person as a result of you acting, or deciding not to act, in reliance upon such information. Any information in this document extracted from third party sources is believed to be correct however Validus Wealth does not guarantee the accuracy of the same. The value of investments and the income produced in securities market can go down as well as up and you may not recover the amount of your original investment. Past performance should not be taken as an assurance of future performance. Any projections or other information illustrated in this document regarding the likelihood of various investment outcomes are hypothetical in nature and may not necessarily reflect actual investment results nor should they be considered guarantees of future results. By accepting this document, you agree to be bound by the foregoing limitations.

In case recipients of this document have any complaints or grievance regarding Validus Wealth’s products, mail us at

Registered Office: Shiv Sagar Estate, A-Block, 7th Floor, Dr. Annie Besant Road, Worli, Mumbai 400 018.Tel No.: +91 22 50941000 | | CIN: U65100MH2016PTC282934

Validus Wealth is registered with AMFI as a Corporate Distributor of Mutual Funds (ARN 138259)