The pandemic has adversely affected the global stock market. The market is down, so are our lives. The capital market across the world sank miserably following the lockdowns, travel bans, restrictions and emergencies. The article seeks to find the answer as to how the market conditions affect all of our lives at large.
By the beginning of the year 2020, the word “coronavirus” was buzzing around the globe. Within two months the word has become predominant in all the sectors, and across length and breadth of the globe. Who would have imagined that the Chinese originated microbial virus will be a pandemic and claim thousands of casualties! The trading at the Indian bourses would continue to be affected by the spreading of the COVID-19 and its impact on the stock market and the economic activities. The research head of Geojit Financial Services said, “The markets will continue to focus on whether the virus infection rate peaks out and also on the coordinated actions of the RBI (Reserve Bank of India) and the government to support business with relief package.”
By the middle of March 2020, the Sensex nosedived 4187.52 points (12.27%) and Nifty plummeted 1209.75 points (12.15%). Equity markets witnessed a sigh of relief when it ended 5% higher at 29,915.96 points. As per the report of Motilal Oswal Financial Services in the third week of March, “Indian indices again plunged sharply this week, witnessing the biggest weekly loss since October 2008, as the increasing number of coronavirus cases in India as well as globally, continued to spook the markets. Easing monetary policy action across the globe shows the impact coronavirus would have on the economy. These concerns will most likely weigh on the markets that would take a while to recover from this significant price damage.”
The world now is on the verge of uncertainty and the future course of market conditions will depend on the development of COVID-19 in mainly in India, Europe and USA. Several sectors like automotive airlines, apparels are dwindling in this uncertainty with confused and anxious investors. Suspension of visas, travel restrictions and the complete national lockdown has affected the market conditions like never before. Besides the outbreak of the pandemic, the markets will also pay attention to other barometers like rupee-dollar value, crude oil, investment pattern, availability of foreign investors etc.
Moody Investors Service has forecasted India’s GDP growth to be 2.5% due to the outbreak of coronavirus. The 21-day lockdown ordered by the Modi government will further result in the sharp decline of income and will slow down the domestic demand and the rate of recovery.
As reported by the Global Macro Outlook 2020-21, “A general lack of social safety nets, weak ability to provide adequate support to businesses and households, and inherent weaknesses in many major emerging-market countries will amplify the effects of the coronavirus-induced shock.”
The pandemic affected western economies show a sharp downhill journey in their market conditions. 5.4% in Germany, 4.5% in Italy, 4.3% in the USA, 3.9% in the UK, 3.5% in France is observed in the first half of 2020. The global economies are trying hard to contain the adverse impact of the coronavirus. But the increasing number of coronavirus cases hint towards an upcoming market apocalypse.
The Reserve Bank of India has taken an essential initiative to tide over the economic fallout of the whole nation. As per its statement, “All commercial banks (including regional rural banks, small finance banks and local area banks), co-operative banks, all -India Financial Institutions, and NBFCs (including housing finance companies and micro-finance institutions) (“lending institutions”) are being permitted to allow a moratorium of three months on payment of instalments in respect of all term loans outstanding as on March 1, 2020. Accordingly, the repayment schedule and all subsequent due dates, as also the tenor for such loans, maybe shifted across the board by three months. ”
The virus that has been making headlines for quite some time now was initially taken lightly by many nations like India and the USA. The countries thought that maybe the disease is topical and might be limited to epicentre China and the Asian countries. They barely had any idea that COVID-19 is on its way to their safe homes as well. The scenario took a different turn when the virus engulfed the whole globe at a crazy speed and World Health Organizations had to declare it as a “pandemic”. The capital market across the world sank miserably following the lockdowns, travel bans, restrictions and emergencies.
The downfall of the market conditions has acquired the shape and size of a massive financial tsunami. The central banks across the world have taken liquidity injection measures to contain the adverse impacts of the coronavirus. Indian market conditions are now dwindling in the Fear of the Unknown. How much can the situation deteriorate? How responsibly and adequately the nations will react to the situation? How much time will be needed for recovering from this mammoth economic downfall? What is the extent of the impending danger for the trade and commerce, market and economic conditions?
Amid the fear and panic surrounding the coronavirus, the oil wars amongst the oil major nations like Saudi Arabia, Russia etc. Russia and OPEC are inclined towards a break-off. Saudi Arabia is slashing down the prices and increasing the oil production for dominating over the US shale companies. 30% fall in the oil prices have given another blow to the global market situations during these tough times.
The fear of the worldwide recession is looming large on the minds of the jittery investors with Sensex and Nifty plummeting over 20% in the month of March. According to Siddharth Khemka, head of retail research in Motilal Oswal Financial Services, “Global equity markets tumbled in the last one month as Coronavirus (COVID-19) spread to more than 100 countries, becoming one of the biggest threats to the global economy and financial markets. In fact, the World Health Organization (WHO) has declared the coronavirus outbreak a pandemic (an epidemic that has spread over several countries), creating panic in the equity markets.”
The stocks of the Indian IT services are highly affected by the outbreak of the COVID-19. The tough times ahead is quite similar to the 2008 global financial crisis (GFC). Within the last month, the stocks have corrected sharply due to the negative effects of the pandemic.
As reported by Emkay Global, “We analyse if it is going to be a redux of the 2008 GFC for Indian IT where the sector saw significant revenue drops in H2FY09 and significant valuation erosion (Tier I Indian techs went down to 5 times-10 times 1-year forward P/E and 0.6 times- 2.2 times 1-yr forward EV/Sales).” The report also added, “During the GFC, Indian Tier-I techs had seen sharp sequential revenue declines in H2FY09 before seeing some stability from the June’09 quarter. Tier-II techs saw much more prolonged revenue/margin hits. Taking this into account, we moderate our FY21 growth assumptions by building in a weak H1FY21, but note that it is currently difficult to assess the extent of damage due to the fast-evolving situation.”
The pandemic has adversely affected the Fortune Clients for the Indian IT vendors and that would result in pricing pressure, slashing of discretionary expenditures, etc. The IT giant Accenture has limited the annual revenue by 3% and earnings guidance range by 2%. Indian brokerage firm HDGC Securities has curtailed EPS estimates by almost 7% and revenue estimates by 2-7%.
Source: BBC
Whereas, some sectors fear the pandemic and forecasting sluggish business growth during the tough times, the food and consumer goods sectors have witnessed a rapid surge. The lockdown has triggered the panic buyers to purchase in bulk out of the fear of the impending danger. The Trade Promotion Council of India (TPCI) observed that there is a 100% hike in demand for essential commodities like rice, wheat, pulses, processed foods, groceries etc. The major areas where the Indian food sectors have witnessed high demands are the US, Europe, Australia, New Zealand, Israel, Palestine and Egypt.
As per TPCI chairman Mr Mohit Singla, “There is huge opportunity amid this COVID-19 crisis for Indian food sector… The coming few months are crucial for leveraging to India’s advantages in terms of exports.” In the month of March, the brand Organic Tattva observed excessively high demand for organic food in India. TCPI released a report that said, “Few big brands like Amul has said that buyers are facing the challenge to pay due to unavailability of banking channel. Another brand Dabur International said, all orders are on hold owing to the COVID-19 crisis.” The rise in the demand is driven by fear among the masses that there will be a shortage of food in the near future.
The condition of the market, both global and domestic, has been hit hard by the pandemic and the oil wars. The market is failing to survive at times, and so are we. But should we just stay anxious and be panic buyers? We can put the bearish market conditions at our advantage. How?
As per the experts of the Axis Securities, “Correction in crude prices augurs well for Indian markets and is an immediate benefit. Actually, the benefits of crude oil correction outweigh the market volatility in the equity markets. Both of these factors make Indian equity markets a good investment proposition.” The report also added that “The coronavirus episode has brought forth the excessive dependence of global supply chains on China. In course of correction measures, India offers an excellent alternative to relocate these manufacturing activities, as India offers educated, low-cost English speaking workforce along with the scale that can match that of China, though it may take a couple of quarters to make it happen.”
Investors who take the plunge during the sharp fall can benefit the most in the long run. There are high chances that the market can fall deeper, and that will be the correct opportunity for the investors to get greedy. Whenever the recovery will occur, investors with low-cost acquisition are sure to reap the maximum benefits.
The market survives for us, and we humans think that we are surviving for the market, but the reality is we often prefer to just survive than to LIVE!