In the past 6 weeks, our Indices have suffered a major fall (-37%) and closed in deep red due to rising cases of Corona virus across the globe.
Most of you are really worried and afraid to invest more but this is the time we should think more carefully and utilize this time most. As this is not the end of the world, therefore in this blog will share some insights on various sectors.
- The Auto sector which is already going through massive slowdown is worst affected. For example, Tamo which owns Jaguar has major sales happening from china. Auto Index itself has corrected close to 60% from 2018 highs.
- The Reality sector usually borrows a lot of money for construction and paying for land and wages. These companies usually get affected worst and we have already seen a massive drop in the Reality Index -44% in just 6 weeks.
- The FMCG sector which is generally defensive in nature due to non-avoidable products is worst affected in this slow down. FMCG companies generally do have to carry heavy debts on their balance sheet and consumption never declines beyond a certain point. FMCG Index has corrected 30% in such a downfall.
The companies which are highly leveraged and which have high debt to equity ratio can see major problems in their businesses. The stocks of these companies have already corrected 40-70% in the last few weeks. The simple reason is that such companies will face difficulty in paying off high interest and principal costs. Most of the companies have taken a loan of more than a 10% interest rate. And when there will be de-growth (negative growth rate) in business cycle how anyone can expect to pay these loans back.
Now, one should look at companies that are work on the asset-light model. Companies where less investment is required to scale the business.
But, the slowdown which our economy will be facing could not be ignored. Therefore it is highly advisable to avoid putting large lumpsum investment in the current scenario.
