A good saying for stock market investors that is often quoted by veteran investors is: "You either get good prices or good news. You don't get both".
At the moment, we are overwhelmed with bad news surrounding Covid-19 related infections and death. The news is not very good, but, stock prices are at good levels.
Reasons to be optimistic that stock prices would rally
According to reports South Korea has reported lesser than 50 new coronavirus cases on Monday for the first time since its Feb. 29 peak. Clearly, there is a trend that daily infections in Asia's largest outbreak outside China continued to trend downward.
The Korea Centers for Disease Control and Prevention (KCDC) reported 47 new infections, compared with 81 recorded a day earlier, taking the national cumulative tally to 10,284.
In US, though infections remain high, there is reason to be optimistic.
The number of coronavirus-related hospitalizations has fallen slightly in New York while discharges are up, Gov. Andrew Cuomo said Sunday.
France and Italy have recorded their lowest death toll from the coronavirus in one and two weeks respectively. Dow Futures are pointing to higher openings for the US markets by a good 3 per cent and the week is likely to open on a good note. Asian markets are up anywhere between 2-3 per cent today and it looks like it might be a good week for the stock markets.
Once infections and fatalities start reducing due to the Covid-19 outbreak, be rest assured that investors are not going to get stocks at these levels. It's important to remember that the globe would be awash with liquidity, given the huge quantitative easing programmes announced by the central banks, particularly the US Federal Reserve. This liquidity is going to find its way into stocks, which could drive prices higher.
India needs capital and lower oil prices
India needs two very important things from the outside world - the first is cheap oil and the second is capital. Fortunately, both are working in tandem.
Interest rates across the globe have collapsed. In the US it is near zero per cent. When interest rates are so low, India will always benefit in a way, to attract foreign capital.
With global interest rates at near zero, money is going to find its way into India for fixed investments and also into stocks sooner than later.
Another silver lining for India is that crude prices have collapsed. India is likely to save a lot of money on crude imports and eventually subsidy. With the global markets awash with crude, it is unlikely that we would see crude prices rallying anytime soon. India is hence a big beneficiary of two important things - falling interest rates, and falling crude prices.
Domestically too, the Reserve Bank of India has cut interest rates sharply by 0.75 per cent, which to some extent would propel borrowings and hence growth. It's highly possible that a couple of years from now, investors who bought stocks at these levels would not regret. In the more longer term, investors are likely to benefit immensely from buying good quality stocks at the current prices.