We are going through unprecedented difficult times. The market meltdown has been savage, globally. This is the worst crash in the shortest time. In 2008, the crash was worse. In India the Nifty crashed 65 % from the peak; but the crash was spread over several months. This time 30 percent crash happened in a few days. In the mother market US, the market crashed by 32 percent in 18 days. Sadly, this is a time when all experts in all fields are bewildered. Nobody is in a position to predict anything. The truth is that we don’t know how Covid-19 is going to pan out. The spread of the disease in Europe and US has been shocking and baffling. The crucial question is: can Europe and US do what China, South Korea and Singapore did? If yes, we will come out of this.
The crucial number
The crucial number that everyone is looking forward to is: When will the new cases peak. In China it peaked in 2 months after the outbreak. Once new cases peak in US and Europe, stability will return. This medical number will dictate the financial/ economic numbers.
Global economy will slip to recession
A prediction, which can be made with reasonable accuracy, is that the global economy will slip into recession in 2020. Almost certainly, we are in recession now. There are a few who fear that this can even lead to a depression. Initial estimates suggest that the global economy will contract by 1 percent this year. Q2 contraction would be savage. Last time the global economy contracted was in 2008-09. Even in 2008, when the market crash was worse, the real economy was working. But now, the real economy has come to a grinding halt due to the total shut down in most parts of the world.
Recovery? Yes. When? Difficult to predict
Another possible prediction is that this epidemic will also come to an end and the global economy will recover. But when the epidemic will end and when will the global economy start to recover is difficult to predict. Perhaps in 2 months, perhaps in 2 quarters. The recovery in markets is likely to be swift and sharp.
Our markets have been dancing to the tune of the mother market, the US market. But it is important to appreciate the fact that the situation is much better in India in terms of the impact of the virus. A very recent MIT research report says that warm temperature can slowdown the spread of the virus. So it is possible that India may be less impacted.
True, these are unnerving times. During panics like this, it is important to stay calm. The market is down by around a third already. The values that we see in the market are reflections of fear, panics and total confusion. Stay calm.