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Last Updated : Mar 21, 2020 10:25 AM IST | Source: Moneycontrol.com

Market awaits relief package, but correction will continue if virus spreads further

Given the disaster, the world may change its way of investment strategy in the future.

Moneycontrol Contributor @moneycontrolcom

Vinod Nair

The financial market has got very volatile due to the fear that developed markets are in doldrums and this stagnation will spread to other countries & segments, impacting the feasible working of the international financial market.

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To address this chaos, more public health & financial measures are needed in the international & domestic markets. Asian countries have managed well in controlling the spread of the virus, while much more stringent public rules are required in Europe & America.

Only when we see stability in the number of new cases being reported in Italy, Spain, Germany, UK, and USA, only then can we have a reduction in the market sell-off. The reversal can be as fast & quick as was the correction.

The confidence is still high that Covid-19 will be brought under control based on lockdown and summer season as efficiently seen in Asian countries. This correction will continue if the panic is maintained due to weak containment as seen to date.

News update is that in the originator China the number of new cases has reduced tremendously, from the mid of March. It is around +20 on a daily basis from around +5,000 a month back. If you have concerns regarding the numbers being published by China, then consider South Korea, Singapore, and others.

It is also expected that in the future we will also develop a vaccine, currently, about 20 molecules are under development and few may go under trial soon, still, it will take months to years to unveil.

The world financial market is trying to support the situation as central banks are providing rate cuts and increasing liquidity. But this is not going to help immediately since the issue is regarding public health which has to improve first.

In India, currently, everyone is talking about a rate cut, even if done, it will not be good enough. More importantly, we need supportive measures to provide confidence in the market for lenders & borrowers about the viability & sustainability of the banking system. We will need more liquidity to the system, credit to SME, refinancing and additional support to sectors that are heavily affected by the slowdown due to COVID-19.

The government should also consider providing minimum wages to daily laborers and sectors who are hugely hit.

The health issues from COVID-19 evolved much quicker and bigger than thought earlier. Leading to restrictions on trade, traveling, consumption and many economic activities, which got extremely curbed recently.

Economic uncertainty for 2020 increased leading to a 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 epidemic will be brought under control by lockdown, increase in temperature in developed countries and vaccines in the future.

Given the disaster, the world may change its way of investment strategy in the future. Within which India is in a good position to outperform in the long-term being structural reforms and investment attractiveness policy in place with better fiscal and low impact from the coronavirus crisis to date.

Currently, the market is waiting for the COVID-19 relief package to be announced by the Indian government.

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 Mar 21, 2020 08:18 am
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