The year 2020 has turned out to be surprising and wild. A few weeks back as I was celebrating New year and planning out my business, this virus broke out in China and has spread throughout the world.
Soon this coronavirus was named as a pandemic. A few months back, even if this pandemic has not affected Indian but has affected Its market. I would say that it was a first stage impact.
Due to this impact, companies started facing issues like supply-side disruption as their work was over-dependent on the Chinese import. Sectors like Autos and pharmaceutical companies started facing severe shortage of supply imported components. This has affected overall production of many companies.
And at the end of January month, India found its first coronavirus patient in Kerala. It was very clear for all the sectors that India may face similar situations. As the virus has started spreading in India, it paved the way for the second-round effect, where economic activity came to halt due to lockdowns.
BIG FIRMS STARTED TEMPORARILY SHUTTING DOWN
Many big firms like Cement companies, Heavy Engineering like BHEL, Automakers like Maruti Suzuki, Tata Motors, Hero Motocorps, ancillaries like Amtek Auto, Castrol India have announced temporary shutdowns.
The Indian government ordered a partial shutdown in some parts of the country as it was necessary for continuous productions of medicines, groceries, food etc. FMCG firms like Hindustan Unilever, ITC and Dabur have shut down its manufacturing sectors except for plant producing essentials.
The first two stages of coronavirus breakout have already wiped off Rs 52 lakh crore worth equity investor wealth, with benchmark Nifty and Sensex. This is considered to be lowest as it had fallen 35% from their January peak.
The government analyst said, “ It is necessary to control and tackle this situation, if third-round effects are job losses, Stretched balance sheets, lower Capex and weak consumer demand.”
On 23rd March 2020, the government of India has declared a lockdown for the next 21 days. In a rosy scenario, the virus will be contained In India and the shutdown would not extend after 15 April.
The Financial investment company Nomura said, “The third round effect will likely materialize, as these shocks transmit to the rest of the economy, i.e. corporates facing a hit on bottom lines. Weaker firms will face cash flow shortages and workers will face pay cuts or retrenchments. This, in turn, can create a vicious cycle of lower corporate Capex and weaker consumer demand”.
But, this not the end, foreign brokerage Morgan Stanley has cut India Inc’s earning for the third time after the breakout and said, “Our F2021 BSE Sensex EPS growth estimate is now 10 per cent, down 20 per cent from mid-February”.
One of the most renowned IT companies, Barclays has estimated that it will cost around $120 billion or 4 per cent of the GDP to India due to cumulative shutdown. Due to additional shutdowns, it will cost more $90 billion.
HOW MARKET WILL BE IMPACTED FURTHER?
Philips Capital except that there will be economic losses for individual, corporate and government. It analyzes this situation in four scenarios.
If the situation worsens in India and globally, it would lead to further selling of domestic stocks which would further lead to a drop of 3.0 to 4% of India’s growth GDP even if the global economy slips to the recession.
If there are no new coronavirus patients and the virus is contained, the lockdown will not last after 15 April.
Philips Capital said, “we would be gradual buyers in equities. Indian economic impact will be limited and FY21 GDP target will be 4.5-5 per cent. But the March quarter impact will be severe”.
In this scenario, if the virus is contained in India but globally still it is an outbreak then Indian equity will outperform and its GDP will grow 3.5 to 4 per cent amid the global recession.
If the virus is contained in India and globally then the Indian market will outperform.
Philips Capital further said, “We will be aggressive buyers in such a scenario at current levels. There would be a manageable economic impact on India and the global economic slowdown will last 3-5 months”.
This scenario has helped me understand the ongoing problem. But it is always necessary to prepare for the worse.
BE PREPARED FINANCIALLY, EMOTIONALLY AND MENTALLY
Yes, it officially declared that we are at a worse stage and the market is crashing and may lead to a recession. Yes, it is true but it is now necessary to be prepared for such situations and tackle them. The biggest truth is we are not going out of business. We just have to stick to the principle. The basic principle in the market is supply, demand, value and human psychology. I have learnt basic principles from Warren Buffet and Tony Robbins.i.e. Buy safe and Play long
- Invest in Value
- Buy low and sell high
- Don’t make too many trades
- Don’t do it if you don’t know
It is indeed an exciting time to live. A daunting time for investors, but this is the phase where you have to calm down and work on your principle. I am very sure when this all things will come to an end which will surely then at that time market will reward people with good fortitude and sense. Those who will panic and can’t handle pressure will be the losers and may not play again in the business. I think we can all cross this ocean of instability by following the principles:
- Make a Plan
- Be prepare for the worse
- Stay Calm
- Do not take any decision
- No huge investment
Thank you for reading!! I will see you on the other side of the ocean soon.