Please refer to important disclosures at the end of this report
Angel Top Picks – June 2020
Worst of Covid-19 crisis seem to be behind for developed economies –– Rapid
spread of Covid – 19 globally had led to Governments resorting to unprecedented
measures including nationwide shutdowns across the world including Europe,
while the US issued strict social distancing guidelines. The global lockdowns have
clearly slowed the spread of the Covid – 19 especially in countries which had been
impacted early on. New additions in Europe have slowed down significantly and
they have already opened up significant parts of their economy. While the US has
been the worst effected country with almost 2mn confirmed cases, the peak of
crisis seem to be behind them and all states have begun reopening their economy.
Monetary and fiscal stimulus by major economies leading to global equity rally –
Central banks and Governments globally have responded with unprecedented
monetary and fiscal stimulus in the aftermath of Covid - 19 in order to contain the
economic damage. The US Fed has pumped in record USD 2.9tn into the
economy through its quantitative easing program since March while most
Governments globally have announced large fiscal packages. As a result there has
been a surge in liquidity leading to a global risk on rally.
Unlock 1.0 and Government stimulus package to drive economic recovery - The
Ministry for Home Affairs (MHA) had announced significant relaxations in
restrictions on the 30th of May 2020. As a result we expect that restrictions will be
lifted in most parts of the country which should lead to increased economic activity
from June onwards. We believe that unlock 1.0 along with the stimulus package
announced by the Government earlier will help the economic recovery to gather
steam from here on.
Cyclical sectors to outperform in near term driven by positive FPI flows – Post the
sharp rally in April Indian markets witnessed a correction in May despite positive
inflows of `14,569 cr. as compared to outflows of `6,884 cr. in the previous
month. Given the US fed fuelled liquidity driven global rally we expect FPI flows to
remain strong which will drive out performance of Indian equities in the near term.
We expect the rally will be more broad based and cyclical sectors like Auto,
banking, construction, consumer goods to outperform in the near term given
beaten down valuations.
Increase in new Covid – 19 cases is key risk for Indian equities going forward -
There has been a mass movement of migrant workers from urban to rural areas
over the past few weeks which is leading to an increase in new cases. Though
India has managed to contain the virus so far by enforcing one of the strictest
lockdown globally, there is a possibility of a jump in new cases down the line given
increased movement of people. In that case the economic recovery may get
pushed back as the Government could be forced to roll back some of the
relaxations. This may result in increased market volatility down the line especially
in cyclical sectors which are leading the current leg of the rally.
Return Since Inception (30th Oct, 2015)
Source: Company, Angel Research (as on 2
Source: Company, Angel Research
Note: Closing price as on 2nd June,2020