Liquidity Is The First Vaccine The World Received, Says N Jayakumar

People and policymakers all over the world may be waiting for a vaccine for Covid-19 but N Jayakumar thinks liquidity is the first vaccine—at least against the virus’ financial and economic impact.

Liquidity injected into economies by global central banks brings peace of mind to businesses and individuals in the short term which gives medical companies the needed one-two years to work out a medical vaccine, the managing director of Prime Securities told BloombergQuint in an interview.

Central banks globally have introduced unprecedented amounts of liquidity into the economies and slashes rates to cushion the Covid-19 shock. While the U.S. Federal Reserve lowered its interest rates to nearly zero in a matter of a week, the Reserve Bank of India, too, has reduced its repo rate by 115 basis points to 4% and the reverse repo rate by 155 basis points. In it’s most recent bi-monthly policy on Thursday kept the repo and reverse repo rate unchanged maintaining an accommodative stance. Besides, the RBI has pumped extra ordinary liquidity in the system via targeted long-term repo operations, special schemes and dollar purchases.

The excess liquidity in the system has led Jayakumar to his thesis: “The longer the pandemic lasts, the stronger will be the indices.”

Most central banks including the Fed have assured the market that they will take all measures for as long as they are needed, making the case for a long period of a liquid financial system. According to Jayakumar, the longer the pandemic lasts, so will the liquidity—mostly pouring into the larger and stronger stocks which make up the country’s indices.

He said that the phenomenon means “the low-hanging fruit is gone”.

Watch the full conversation here:

In March-end Jayakumar said this was the opportunity to build the portfolio of a lifetime. This time around, we asked the market veteran which investment themes, according to him, have been most impacted by the pandemic. Here’s what he said.

Technology

• Technology will be one big unifying theme.
• The one thing that melding all of us is a combination of telecom, data and technology.
• These are the ones who will become the more prominent players significantly.

Water & Sanitation

• One of the most prominent business themes will be sanitation and hygiene. And therefore water.
• Around the world, water would be a theme business and could be a good play.
• Two or three Indian companies have a cutting edge with patents.
• Everybody now sanitise things they bring home before they walk in, everybody has a sanitiser which they spray on. That’s the cultural change.
• Water shortage and handling water will become added themes in this world.

Packaging

• Packing businesses see a massive surge in demand because of the changed method of business.
• Indian packing industry is coming on the back of extremely low Ebitda and PE multiples. Therefore, it’s now set for a big re-rating and big surge in valuation.
• Packaging is now a given ingredient in all businesses.

WFH

• Depend on residential homes being repurposed for work for home.
• The 7-8% yield on commercial estate will collapse and residential yields at 2-3% can start moving up. The commercial estate yield can come down from 8% to 6%. Residential yields could go up to 4%.
• Government to probably need to step in and say stamp duty for all real estate transactions over the next 24 months should be made zero.

Online Education & Media

• Media is not just low-hanging fruit but very juicy fruit because this is being used every day.
• Each of us is depending on at least one channel or OTT provider.
• If media is not FMCG today, nothing else is.
• Essentials are defined as food clothing and shelter; the new normal define essentials as data, connectivity, and some entertainment.

Entertainment

• Most of the growth metrics of media are all subscription and OTT platform-based, especially the two or three largest ones.
• All are going at a valuation which are at 10-year lows.
• Some of the big ones are going at single-digit multiples because of yields of corporate governance as perceived in the promoter group.