Focus on groceries during Indian lockdown
Since its peak on January 17, the Indian stock market has fallen 31%.
India has had a number of corrections over the past five years. Narendra Modi’s economic policies have created turbulence as India introduced currency reforms, national VAT and went through a baptism of fire in the financial sector. But not since 2008 has the fall been this big. The Indian stock market fell almost 60% during the global financial crisis, but that took a full year. The concern about the coronavirus has led to fall of over 30% in just two months.
Officially, India has just over 2,000 cases of the virus, but this does not explain the decline. The undiagnosed numbers are large. India was in an economic growth slump before the virus, with an expectation of a cyclical recovery for corporate profits. This scenario will be difficult to achieve now.
China acted quickly and shut down, isolating 60 million people in Hubei Province on January 23. Two months later, they are through the worst of the crisis with only a few new cases. India acted as late as March 24 when Modi decided on a lockdown for the entire country, 1.3 billion people, for three weeks to prevent the spread of infection.
Whether this strategy proves successful remains to be seen. The effect is an economic halt. Car sales in March fell by 80%. Sales of Voltas air conditioning are likely to fall by the same amount if the quarantine period is longer than one month. The banks risk seeing both weaker lending and higher bed debt losses going forward.
Despite the large downturn during the month, Carnegie Indienfond is relatively defensive. Earlier this year, the fund had reduced its exposure to banks. The holding in Reliance was also halved. The holding in Hindustan Unilever, which sells groceries like food, soap and shampoo is very defensive. Nestle India is also resisting in the downturn. Nestle sells milk powder, instant noodles and other foods. Maggi noodles and other long-life goods are being stockpiled as Indians go into quarantine. Both Asian Paint and pharmaceutical company Dr Reddy’s Laboratories have a defensive nature. Most of the fund’s holdings are very well managed and have low debt or net cash.