Deflecting the negativity around rising coronavirus cases and the fact that economies around the world are now at the cusp of a recession, Indian markets continued with their ascent with the benchmark Nifty crossing the 10000 mark. Investor sentiment continued to stay buoyant as government’s across the world, including the Indian government, decided to reopen the economy in a phased manner. Additionally, better than expected GDP numbers along with Prime Minister Narendra Modi's comment that India's economy would get back on track supported by systematic reforms gave a further fillip to positive domestic sentiment. The Q4FY20 GDP number came in at 3.1 per cent, better than the consensus estimates of 1.6 percent. This positive sentiment was also reflected in institutional activity as foreign portfolio investors (FPIs) net bought Indian equities on each of the days in the preceding week. During the period June 1 to 5, 2020, FPIs have net bought Indian equities worth Rs 13,927 crore. In the same time period, domestic institutional investors have net sold Indian equities worth Rs 1600 crore.

On ground economic activity continues to be lacklustre indicating that a recovery is far from visible. For the month of May 2020, India’s manufacturing Purchasing Managers Index (PMI) contracted to 30.8 in May, marginally up from April's 27.4 due to weak demand and challenges in logistics and transportation. The Services PMS stood at 12.6 in May 2020, indicating a sharp contraction in services across India. Demand for services, both domestically and overseas, continued to plummet in May as most businesses remained closed. Further, exports from units in special economic zones (SEZs) fell over 50 percent in April 2020, while more than a third of the orders placed were cancelled, due to Covid-led disruptions, revealed an internal survey carried out by the Export Promotion Council for EOUs and SEZs (EPCES). The lack of economic activity will be challenging to support considering the weak fiscal condition of the government. The central government’s fiscal deficit for FY20 slipped meaningfully to 4.6 percent of GDP versus a revised estimate (RE) of 3.8 per cent and an initial budgeted estimate of 3.3 per cent of GDP. The shortfall in budgeted and actual numbers can be largely be attributed to a shortfall in tax collection.

Even though Unlock 1.0 has given investors much to cheer about, it is important to understand that an economic recovery is not imminent. Additionally, the recovery is going to be a long and arduous one. Now, more than ever, is the time to invest with caution.