A medical solution & stimulus to give direction to market: Nilesh Shah

We cannot say if markets have bottomed out until a durable medical solution emerges, says MD of Kotak AMC

In March, we were using words like excruciating fall, panic, financial Armageddon. In April, we used things like sharp comeback, bulls are back and the feeling of FOMO. Markets overshot themselves on the downside in March, but have they overshot themselves in April? Do you think a sharpish correction is now round the corner?
Everything will depend on the intersection of medical solution and fiscal and monetary stimulus. If we are lucky, we get an early medical solution and we get fiscal and monetary stimulus which is more than needed by the economy, then markets will stabilise. However, in that unfortunate scenario where a medical solution gets delayed and we do not get fiscal and monetary stimulus, them markets will certainly continue to slide. This is where markets and economy both will be looking forward to an intersection between medical solution and fiscal & monetary stimulus.


So why did markets run up despite no clear medical solution in site? It is not only our markets, but globally also. I looked at last week’s data, Nasdaq is in the green. Now when the world is falling apart, Nasdaq has managed to close in the green. Dow also is not down more than 20%. Can I safely assume that somewhere the markets had run up ahead on themselves and now normalisation will happen?
It is difficult to say whether markets have run up ahead or behind, because they are constantly discounting news. On one hand, central banks have printed huge liquidity. Fed’s balance sheet has exceeded $6 trillion for the first time, and as we speak who knows it might exceed even $7 trillion. So this money, which has been printed, is bound to inflate asset prices, that is probably happening on the global side.

Secondly, there has been some interesting developments on the medical solution side. Yesterday, we heard the news in Israel. University of Oxford we have heard about. Italy also made some news. Now, these may be sensation, these may be reality, who knows! But markets are constantly trying to analyse data to find out a solution.

Looking at the Indian market clearly, there are a couple of factors which pulled the market from 7,600 up. One was the proposed increase in weightage by MSCI, FTSE Russell. MSCI is likely to increase India’s weightage by about 8 per cent by June 30. FTSE Russell is likely to increase it by up to 17 per cent from here till August 31. Both these proposed weightage increase in benchmark indices is likely to result in FPI flows. So that could have given one push to the market.

Secondly, it could be the pure valuation. In October 2008, Sensex market-cap to GDP ratio at 8,000 had come down to 43 per cent, and at 7,600 Nifty market-cap to GDP ratio was at 47 per cent. So cheaper valuation also probably pulled some people to buy. A combination of that probably resulted in the market bouncing back in April. We cannot certainly say that markets have bottomed out till a durable medical solution emerges.