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Last Updated : Apr 04, 2020 08:26 AM IST | Source: Moneycontrol.com

Coronavirus pandemic | World can control spread only through stringent lockdown

A successful domestic lockdown and reopening of the economy on April 15 is very important

Moneycontrol Contributor @moneycontrolcom

Vinod Nair

The candid approach of developed markets to the coronavirus (COVID-19) pandemic has taken a heavy toll on the public and economic life. Stringent lockdown was announced only after bearing a heavy cost on life. By that time, the virus had spread to a good level and now the lockdown and restrictions may prevail for an extended period.

Initially, regulators in developed markets were focused on providing financial stimulus to the economy, to overcome the financial stress from trade slowdown in the eastern part of the world. They thought that this epidemic will not reach them and develop as a pandemic.

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Even when it started to impact the European countries, the United States was very candid and announced quantitative easing (QE) rather than restricting public and economic activities, assuming as if they are safeguarded.

This approach is taking a toll on the rest of world today, the way it was being controlled in Asian countries is encouraging. The Asian governments implemented measures to find and trace people at COVID-19 risk, tested, isolated and quarantined them at no extra cost.

This was implemented much before when developed governments was discussing about financial cost from external factors, who will bear the cost of testing, health insurance and policy. It tells us that the developed market’s politics, public healthcare and economic system are conducive to manage such a health issue.

Now developed economies have come to a standstill. The number of people who registered for unemployment benefits in the US during the second week of lockdown reached 10 million. A new record 6.65 million people filed jobless claims in the week ended March 28, as many stores and restaurants were forced to shut down.

In India, IHS Markit India Manufacturing Purchasing Managers’ Index (PMI), an indicator of the economic health of the manufacturing sector, fell to a four-month low of 51.8 in March 2020 from 54.5 in February 2020, as much expected.

A reading above 50 denotes expansion and below 50 denotes contraction in the PMI. The growth in index has remained above the 50 mark since August 2017. Manufacturing sector witnessed a record decline in new export orders with international demand faltering amid the COVID-19 outbreak, PMI is likely to be much below in the month of April than that reported in March due to lockdown.

The coming weeks the market is likely to wing as per the technical/chart pattern due to long holidays in the coming two weeks and fundamentals weak given lockdown and increase in world virus cases.

The technical/chart analysis of our team is that, given repeated penetration below Nifty50, 8,300 in the last three days, though brief, has forced us to reconsider the present pattern as bearish continuation with medium-term worst of 6,140. But alternatively, a turn from 8,080 and direct rise above 8,450 can be taken as an upside reversal sign, this could be a trading range in the near-term. A successful domestic lockdown and reopening of the economy on April 15 is very important. While at the same time the world could also witness improvement in its control system.

The author is Head of Research at Geojit Financial Services.

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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First Published on Apr 4, 2020 08:26 am
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