06 Mar 2020 by Harsh Ashar
Is it Negatively Positive?

The share market in India witnessed one of its worst crashes in a single day on 28th February 2020, with the benchmark index Sensex falling by 1,448.37 points as a result of a global scare caused by the spread of the Coronavirus. Nifty50 too slumped 363.4 points.

Despite this massive correction, the share market in India managed to recover on the following Monday after markets reopened after the weekend.

However, this recovery was short-lived as two new cases of Coronavirus reported in India proved to be a dampener. As a result, the share markets in India again closed in the red.

In a bid to support economic growth and mitigate the economic impact of the Coronavirus, many central banks across the world have announced stimulus measures such as interest cuts.

The threat posed by Coronavirus has rattled share markets in India as well as worldwide and put governments on a defensive mode as affected countries race towards containing both the virus and its impact on their economies.

So, in short, the situation has been improving over the past few days - but, unfortunately, we are still surrounded by negativities more than anything else.

Let me highlight a few pointers to you:

  • When the markets corrected over the past few days by almost 10%, the fall in large caps was a lot bigger than the fall in mid or small caps.
  • We've been through the phases of ZICA, Ebola, or even SARS (it was much more deadly than the Coronavirus), the markets did correct in the short term - but, we also know that the markets grew over 10-12 times after the SARS pandemic in 2003.
  • Apple & Starbucks have said that they've reopened 85% of their stores in China - Yes, it's businesses getting back to normal.
  • In China - as the numbers show, there are over 47,000 recovered cases, and there are under 30,000 active cases of Coronavirus.

Yes, there will be a temporary hue and cry, but we see enough signs of recovery, and we also know that once things get back to normal - markets will jump up before we even realize that they have started to recover.

What's in store for India?

  • The price of crude oil has fallen from $68 to $48
  • Imports from China are falling and in all possibilities may stay low in the near future:
    • Can this help local manufacturers? Yes, for sure!
    • Can this, in turn, help in reducing the $50 billion trade deficit with China? Yes again!
    • Can this help India as a country get some share of manufacturing that has got hampered due to Coronavirus in China? Yes, once again! After all, India is the second most preferred destination after China for outsourcing work related to manufacturing.

A bit of global impact:

What would happen if there is a temporary fall in overall global consumption?

  • Central banks all across will pump in more liquidity and also cut interest rates. (RBI would also in highest probability do the same)

Some negative positives:

  • Due to the fear factor, FIIs have taken out over Rs. 12,000 crores from the Indian markets. Once the fear subsides over the coming few weeks, wouldn't all that money come back? Yes, it will - where else will they get better returns as compared to investing in India!
  • In the short run, there could be some impact on the prices of consumer electronics, mobile phones, cars, pharmaceuticals, etc. But, on the other hand, due to a fall in fuel prices, it would have a positive impact on prices of food, milk and other essential commodities.

I am not saying there is nothing to worry about the Coronavirus. All I am saying is that as long as India can contain the spread of Coronavirus, I see it having a positive impact in the long run.

A small piece of advice for serious investors in the share market in India

If you are invested or are thinking of investing in fundamentally strong businesses, my only advice is to stick to the golden parameters of value investing.

And before I end, I would just say a couple of things:

  • Avoid listening to and more so, reacting to rumours. Especially when it comes to your health or your finances - trust experts more than the forwards on social media. Read more about the perils of investing on the basis of rumours here.
  • Do not try to time the markets - if you are invested in the right businesses, you will end up creating wealth in the long run. Like I always say, time in the share market in India will always be more important than timing the market.

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