If you are also wondering what will be the impact of COVID-19 on the Indian share market then this blog is for you. We have tried to cover all the important aspects related to the Coronavirus impact on our stock market.
What happened during the Coronavirus crisis?
On 23rd March 2020, the BSE Sensex, experienced the biggest single-day fall. It surpassed the infamous fall of 28th April 1992. The decline was reported after the crude war initiated by Saudi Arabia. And this happened during the Coronavirus fears. The global economy was facing an economic struggle because of the trade war between the US and China. But the Coronavirus pandemic which spread like wildfire only caused more uncertainty. Even now, nobody is sure when it will end. Future financial implications for economic recovery have caused severe distress worldwide. Financial investors are in a panic.
But what is the situation in India?
In the past few months, the Sensex has broken the record of the biggest single-day fall around five times. On the 23rd of March, the Sensex and Nifty sustained the highest losses ever which were 13 percent. Because of the coronavirus pandemic, 50 lakh crores of investor wealth has been wiped out. India’s growth had trundled down to only 4.7% which is the lowest in 7 years. At present, the markets are in a phase of uncertainty with no visible trends. The only guarantee if the coronavirus does not disappear is significant downward trends in the market. Keeping in mind the investment market, a severe ambiguity with the market trajectory would show. The Indian stock market has lost 26 percent in dollar terms and continues to stay volatile.
Aftereffects of the lockdown
There have been strict measures in place from the day once to contain the coronavirus in India. The main impact that the Indian markets suffer is because of shutting down the economy. And it won’t be because of the global pandemic and its casualties. There are three components to the economy – the government, the corporates, and the consumers. The GDP value loss would be the one that could be the most prominent. Getting the market up and running will take another year or so. The worst affected could be the consumers, because of facing job losses, lower wages as well as the loss of income. Companies have scaled back, layoffs have multiplied and employee compensations have been affected. There has been almost zero growth during the past four months.
Ripples in the stock market
At present 41 ex-financial Nifty 50 stocks are trading in single digits. The worst ones affected are metal and oil stocks. Due to lower demands and valuations of both products, they have been falling in price. Even the automobile industry has seen a slump due to the affected sales when the lockdown was in place. Certain sectors like hospitality, tourism, and entertainment have been adversely affected. The values of their stocks have plummeted down by 40%.
What measures the government is taking to deal with the impact of COVID-19?
The government and the RBI have come up with various solutions to deal with the impact of COVID-19 like reductions in the repo rate, regulatory relaxation by extending moratorium, and several other measures. This is to boost liquidity in the system. In the corporate sector, some measures have been introduced with payment deferrals, loans on hold, etc. But there has been impairment with regard to economic activity and growth. Only companies with innovative products, increasing distribution reach, technology-driven processes, and a healthy balance sheet would be able to get back into the game once this all is over.
Looking at the market through an Investor’s lens
From an investment point of view, the Indian markets would continue to see a phase of uncertainty. But the deep market correction has created a rare opportunity for long term investors. It is to create an investment portfolio in large-cap stocks with solid fundamentals. They need stronger balance sheets and a consistent record of revenue and earnings growth. Investors should refrain from any short term strategies. The reason is that the market could take a turn in any direction in the current scenario.
How soon will the Indian Market recover?
The virus began in China, but the market there has shown a complete recovery with almost 90% of the business resumed. This gives a ray of hope to the Indian Market. The Indian economy is at the bottom right now. But what could work for us is that we are fiscally independent and healthy. Our currency has not done as badly as the others in the market. We would still need a restart button to get back to normal, but that could be easily done. Only if the government provides an impetus to small businesses and liquidity boost to all sectors. The easing of balance sheets can also help us make a complete recovery. Our government has targeted some sectors for this. Sectors like farming, infrastructure, and logistics located in low-risk areas. This will help keep the market afloat, which has been along with easing pressure on public sector financing.
Where should you look to Invest?
Like we have mentioned before, there are many places to invest given the current market scenario. Bonds and gold have been outperforming despite the stock market being unfavorable. There have been reduced demands of automobiles, real estate, and luxury goods. Hence they would seem as unwise investments in the current market. But the healthcare and eCommerce sectors have been flourishing and giving a boost to the market. At present, the best places to invest in share would definitely be the healthcare industry. The others are the FMCG and energy sectors.
Our final words
There is no doubt that the impact of COVID-19 on the Indian economy is deep. But it is certain that the markets will sooner or later retain their position. Some fluctuations are temporary, but growth is permanent. It is definitely worth taking exposures right now but do not jump blindly into the market. Let us here at Investallign help you with all your financial needs.