Coronavirus lockdown mints more than a million new stock traders
By Ishika Mookerjee, Ronojoy Mazumdar, Nupur Acharya and Abhishek Vishnoi
Hemmed in by the world’s strictest stay-at-home measures, Raunaq Singh, owner of a clothes store in India’s capital of New Delhi, has begun to dabble in the nation’s equities.
“I had been thinking about it in the past few months, but I had a busy schedule,” said the 27-year-old, who split 160,000 rupees ($2,117) between a couple of stocks over the past month. “There was no better opportunity than this to open a trading account.”
Singh joins a growing contingent of individuals across the globe who are getting their feet wet in the stock market as social-distancing rules keep them at home. About 1.2 million new accounts were opened with the Central Depository Services (India) Ltd. in March and April, up from a combined 900,000 in the first two months of the year, according to data from the Mumbai-based share depository.
With risk assets sinking to multi-year lows in March because of the coronavirus pandemic, retail investors globally spotted a buying opportunity and piled into equities. India’s S&P BSE Sensex index remains 26% below its January peak, even after rebounding from the sell-off, burnishing the allure for stocks. Valuations for the gauge have become cheaper, about a quarter below their three-year mean.
“Work-from-home has given people the bandwidth to do something that they haven’t done, and the rapid price fall gives the perception that things are available for cheap,” said Nithin Kamath, chief executive officer of Zerodha Broking Ltd., the nation’s biggest online discount broker with 1.6 million clients.
Zerodha has seen monthly account openings double since February, with a 20% increase in first-time investors, mostly under 30 years old, he said. Upstox, another discount broker, moved a chunk of its processes to cloud-based systems in April to cope with the jump in trading volume and account openings, said Amit Lalan, a director at RKSV Securities Pvt., owner of the digital platform.
The trend is playing out in other markets as well. In the U.S., E*Trade Financial Corp., TD Ameritrade Holding Corp., and Charles Schwab Corp. each saw record sign-ups in the March quarter, driven by retail investors. In the Philippines, local investors are jumping in to ride what they hope will be a strong rebound, even as foreign funds flee. It’s a similar story in Singapore, where record low interest rates are tempting some retail investors to load up on debt to buy shares.
Rescue Package
It’s not all rosy, though. The staying power of the rally in global stocks remains in doubt amid poor economic data and fears of another wave of the virus. India’s Finance Minister Nirmala Sitharaman offered $72 billion in credit lines to small businesses and power distributors on Wednesday, as part of a package totalling $265 billion to restart the economy cratered by the pandemic. The government will spend $20 billion to lift incomes for farmers and fishermen, she announced on Friday.
The South Asian nation of 1.3 billion people has recorded more than 81,000 Covid-19 cases so far, according to data collected by Johns Hopkins University. The initial three-week stay-home order that is due to end on May 17 got extended twice.
The extent of the economic damage from the lockdown and its impact on corporate earnings aren’t fully priced in, Zerodha’s Kamath said. He expects the spike in new sign-ups to ebb once the impact becomes apparent. Unlike in China, mom-and-pop investors don’t hold much sway over India’s $1.6 trillion stock market, which is dominated by local and foreign institutional investors.
Still, Singh is looking past this pessimism as he plans to hold his shares for three years.
“Given the uncertainty about the outbreak, it feels like a gambler’s market right now, but I am investing for the long term,” he said.
Equity strategists and economists expect more expenditure to revive economy
By Abhishek Vishnoi
Equity strategists and economists expect India’s government will have to spend more to revive the economy as steps so far aren’t sufficient with investors’ focus shifting to worsening macro indicators.
India’s government extended its nationwide lockdown until May 31, while further easing restrictions in certain sectors to boost economic activity, as coronavirus cases escalate across the country.
A $265 billion virus rescue package is equivalent to 10% of India’s gross domestic product, but some economists estimate the additional government spending is only about 1% of GDP. Infections are surging across the nation of 1.3 billion people, with more than 95,698 infections, including 3,025 deaths, according to data from Johns Hopkins University.
Equity futures on India’s NSE Nifty 50 Index traded in Singapore dropped 0.2% Monday, signalling local stocks may extend declines after recording two straight week of losses.
Here’s what equity analysts and economists are saying about India’s stimulus:
Mahesh Nandurkar and Abhinav Sinha, equity analysts at Jefferies Financial Group Inc.:
* “The net fiscal impact of the economic package is estimated at ~1% of GDP. The combined fiscal deficit is estimated at 10.5-11% of GDP for FY21.”
* “The key excitement will be how the current crisis enables structural positives, with the focus on ease of doing business, e-Governance, labor & power distribution reforms, and an increased focus on privatisation.“
* “With fiscal news now behind us, the market focus should return to earnings and economic indicators.”
Kaushik Das, India chief economist at Deutsche Bank AG:
* “1% of GDP worth additional spending is not sufficient to support the ongoing destruction in domestic demand, and more direct fiscal support will be required through the course of the year to support growth.”
* “We anticipate 0.8-1.0% of GDP in additional expenditure to be announced during the course of the year.”
* “Recapitalisation of public sector banks may become necessary, in our view, as NPA’s rise in the near future, which can potentially add to future fiscal deficit and public debt.”
Kapil Gupta, an economist at Edelweiss Financial Services Ltd.:
* “The package is underwhelming on ‘here and now’ demand stimulus.”
* “A more rigorous and timely demand-side response is essential, fully supported by RBI’s rate cuts/OMOs. Given depressed demand conditions, we believe fiscal activism will serve the cause of growth, jobs, price stability and macroeconomic stability better than fiscal conservatism.”
* Continues to be mostly overweight companies that have good balance sheets & ability to gain share
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