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Moneycontrol Pro Weekender | Too much is not enough

Dear Reader, Rock music fans of a certain vintage will remember Deep Purple’s track ‘Too much is not enough’ from its ‘Slaves and Masters’ album. It was far from being one of their best and deservedly faded into obscurity. The only reason for bringing it up now is because the title captures very well what central bankers in the major developed nations and their governments think is good enough stimulus. ‘Whatever it takes’ has been replaced by ‘Too much is not enough’. Indeed, lines like ‘Come on admit it, you're over the top’ and ‘Once you get started you're out of control/Don't play that sweet and innocent with me, girl’ in the song seem directly aimed at Jerome Powell and Christine Lagarde respectively. In case you’re mystified, that little introduction was in the context of the European Central Bank expanding its bond buying programme by Euro 600 billion last week. It’s also about White House aides talking of a $1 trillion stimulus as the next round. The markets, of course, are loving it. The extraordinary global market rally keeps going, despite complete pandemonium in almost all economies. The JP Morgan Global Composite Purchasing Managers Index for May, a snapshot of economic conditions in both the manufacturing and services sectors, was 36.3, a bit better than April’s 26.2, but since any reading below 50 signifies contraction from the preceding month, all it shows is that the global economy continued to shrink in May, albeit at a slower pace. In India, the PMI readings were far worse, with the composite PMI for May at a piffling 14.8, indicating the depth of the contraction. India’s manufacturing PMI was the lowest in Asia. No matter, the markets moved up smartly last week. This was the week immediately after the announcement of deeply depressing GDP data for the March 2020 quarter which made it crystal clear that the Indian economy was sick long before the pandemic and the virus sent it to the ICU. Growth in the non-farm private sector was a mere 1.1 percent year-on-year. What’s more, data on government finances showed that the fiscal deficit for April was already 35 percent of the entire year’s budgeted target. Now we know why the centre is deaf to the plaintive cries of more fiscal stimulus. Moody’s downgraded India to one notch above junk, but as we said, that would make little difference. The markets pointedly ignored it. Is the spring in the markets’ step on hopes of a swift revival of consumer demand? That could be a pipe-dream, because an RBI survey found that consumer confidence had completely collapsed. There are a few silver linings too, such as good monsoons, although that’s hardly enough, what with very small increases in minimum support prices for crops. There will, of course, be a bounce as the lockdowns ease. No sir, this is a global rally and we have to look for clues to the developed nations and their central banks. During the week, market guru Jeremy Grantham joined a chorus of other bigwigs to pour cold water over the euphoria. His take: ‘the current market seems lost in one-sided optimism when prudence and patience seem much more appropriate.’ Bloomberg says the global equities index is at its highest estimated price-earnings multiple since the early 2000s. In this market environment, with such a wide gap between the state of the economy and the markets, analysts are naturally advising caution. Many of their recommendations advise buying, but strictly on dips. The other rather obvious strategy is to buy stocks with a long time horizon. The emergence from the lockdown has led to a lot of hopes on auto stocks based on the theme of the added attraction of personal mobility in the covid-19 age. As usual, our firecely independent research team also lists stocks you should avoid. Instead of whining, though, the pros are busy raking in the moolah. There has been record issuance of high yield and emerging market debt---even cruise lines have grabbed the opportunity to issue junk bonds. Chinese authorities are trying to drum up interest in a wave of bond issuance by local authorities. All this is happening despite a spate of downgrades, thanks to the magic of central bank and government backstops. Reliance Industries has also been quick to seize opportunities and Jio Platforms, which has been a magnet for investors even in the midst of the pandemic, has now attracted support from a sovereign wealth fund. We do not want to underplay the yawning gap between the dire straits the economy is in and the upbeat markets, the uncertainties on the road to recovery, or the risks down the road of the massive interventions by central banks and governments. But if we were to play devil’s advocate, we would draw attention to central bank and government underwriting of credit, the pitiful yields---sometimes negative—from other assets, the ultra-low interest rates and, lo and behold, frontline equities that can ride out the storm suddenly look better than bonds or cash. The pandemic and the lockdowns will ensure that the big will get bigger. Also remember that stocks in the time of covid-19 will give all sorts of surprises—for instance, Chinese liquor giant Kweichow Moutai’s market cap briefly surpassed that of ICBC, the world’s largest bank. All that liquidity, I guess. Cheers, Manas Chakravarty.reckoner_bx{ background-color: #F0F0F0; padding: 20px; font: 400 16px/22px 'Noto Serif',arial; border-radius: 5px; margin-bottom: 0px;}.reckoner_bx .rek_title{font: 700 18px/25px 'Fira Sans',arial; color: #0155A0; margin-bottom: 7px; text-transform: uppercase;}.reckoner_bx .btn_reck{border-radius: 20px; background-color: #135B9D; display: inline-block; font: 700 14px/19px 'Noto Serif',arial; padding: 8px 25px; color: #fff !important; text-decoration: none !important;}.reckoner_bx .rek_btnbx{ margin-top: 10px; }.reckoner_bx .bldcls{font-weight: bold;}Moneycontrol Ready ReckonerNow that payment deadlines have been relaxed due to COVID-19, the Moneycontrol Ready Reckoner will help keep your date with insurance premiums, tax-saving investments and EMIs, among others.Download a copy .icn_reck{fill:#fff;} function loginSignupPost(id_form){ var user_id = getCookie("nnmc"); if(user_id!= "" && user_id != null) { var package_duration = $.trim($("#mc_pro_37").attr("package_duration")); $("#mc_pro_37").attr("action","https://payments.moneycontrol.com/payment.php"); $("#mc_pro_37").submit(); } else { $("#ifval").val("490px"); $("#myframe").attr("src","https://accounts.moneycontrol.com/mclogin/?d=2"); $("#LoginModal").modal(); } }