Time to be patient

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Market is concerned as it is relating the current pandemic crisis with the financial crisis of 2008. During the global crisis of 2008-09, Nifty50 corrected by more than 60% in a span of one year. This time we are down by 30% within a short period of less than one and half months. The fear is that this pandemic may spiral out of control and could lead to financial and economic crisis. As investors hate uncertainty there is panic selling across the globe leading to markets collapsing at a rapid pace. Funds are shifting to government bonds and US dollar, leading to increase in bond prices and fall in yield while currencies are depreciating.

The key differences between both the crises are that, this economic slowdown is because of a health crisis and economic uncertainty arising from it. Countries across the globe are trying to contain the outbreak by adopting measures such as lock-down, imposing travel restrictions, self-isolation, social distancing, and heightened hygiene. The economic activities will reverse slowly as this pandemic is brought under control. Market don’t feel that it will take as long as a year to recover as is being expressed by a majority of experts. Whereas the global financial crisis was due to financial problem in the world’s largest economy- US, which accounted for 1/4th of the world economy, due to credit default swap (derivatives) and slowdown in housing sector. This led to collapse of big financial conglomerates and spread to the world financial system.

To address the financial crisis of 2008, US and Federal Reserve issued fiscal and monetary support, which brought confidence in the market in a span of one year. Similar monetary stimulus measures have been implemented by many countries today. But these may have a limited positive impact today since the problem is not as much an economic crisis as it is a public health crisis. Currently, the pandemic has spread to all corners of the world, infecting almost two lakh people. On a country by country basis we can see that new cases of infection are reducing and its spread is being brought under control. Spread has reduced substantially in China, South Korea, Singapore and even in places like Italy and Iran which was a concern as a large number of new cases were being reported. This is post issue of stringent lock-down and health precautionary measures.

In February 2020, the world Mcap was at record high, and assumed that covid-19 would not impact the developed market. But the health crisis evolved much faster and bigger than thought earlier. Leading to restrictions on trade, travel, consumption and many economic activities. This economic uncertainty for 2020 increased leading to downfall in GDP forecast, corporate growth rate and increase in fiscal risk. At the same time, based on the development from January to March, the positive feeling is that this pandemic can be brought under control by lock-down and vaccine in the future. Given the impact of this pandemic, the world may change its investment strategy in the future. Within which India is in a good position to outperform in the long-term as structural reforms and investment attractive policies are in place.

10 COMMENTS

    • for the present, it appears that this phase of lockdown is upto 13th April but may get extended upto 30th April. Hopefully, it will certainly be normal after that and markets will start improving by mid May.
      people n3ed to be patient enough and should wholeheartedly support the measures being initiated by Govts

  1. Phoenix out of ashes possible.If there is no ashes then !
    My experience with even good large cap like Eicher,HPCLetc once bled it may remain for four to five years. So I cant agree with you.Sorry.

  2. The current damage will take ages to redeem. The confidence in equities are shaken to such an extent I wonder whether the concept of minority shareholding in traded companies will have anymore takers in the new world order which will evolve post this period.

  3. But unfortunately govt is indefferent to the economic situation and worried more of it collection ( income) than thinking of a stimulus package .

  4. This situation is not going to last long. But, how long it will take to become normal ? nobody can exactly predict it.

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