Post-COVID: Utility stocks expected to perform better than commodities stock

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Prashant Jain, Executive Director and Chief Investment Officer (CIO) of HDFC Mutual Fund was quoted as saying “One should not focus too much on near term negatives, but look beyond the current year”.

The present circumstance is phenomenal, and the world is still in the process of figuring out the medium- and long-term impacts. For India, impact on the economic growth, incomes—especially for the lower-income groups—and the fiscal deficit is likely to be significant. However, on the external side, due to a sharp fall in oil prices as well as a likely sharp fall in gold and consumer durable imports, the current account deficit should improve despite a fall in remittances and exports. It is fascinating to take note that Indian markets will recuperate a lot quicker than other markets. This is a direct result of strong household development and the low-to-direct effect of worldwide advancements in India. The above recommends that business sectors hold a great guarantee over the medium to the long term.

The government’s Rs 20 lakh crore economic support package, intended to help the economy tide over the Covid-19 crisis, will involve a very small amount of direct government spending, said economists. As such, it may not be adequate to help push up demand in the economy. According to experts, increasing infrastructure spending can help revive the economy, as it does not depend only on reducing taxes. However, many of the measures unveiled have been in the form of moves like loan guarantees which do not entail an immediate fiscal cost.

Earlier, the government has separated an incentive from PSUs by paying itself huge dividends or forcing mergers that helped in the improvement in some PSUs in areas like capital allocation, investor communication, etc.

Whenever we are stuck in some crisis(like the one we are in right now), we must seek for an expert’s advice. From an investor’s perspective, it is best not to focus on the current year’s profits for two reasons—first, FY21 is an outlier year and current year’s profits are not representative of the future. Second, the impact on the intrinsic value of businesses due to lower current year profits will be marginal.

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