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Tune in on 17th July for the Small Business Virtual Summit with Cisco. Register now!
Last Updated : May 30, 2020 02:04 PM IST | Source: Moneycontrol.com

Market still expects more reforms for corporate and sectors that are highly impacted by COVID-19

Now, it is anticipating a better economy in Q2, which may be partially opened while a full opened economy could happen by H2FY21.

Moneycontrol Contributor @moneycontrolcom

Vinod Nair

The world equity market has been performing much better than the Indian market. Global market is backed by huge fiscal & monetary support and moving up in anticipation of re-opening the economy.

While in India the lockdown has been very stringent, the economic activity is forecasted to have fallen by 40 percent in Q1FY21 and 1/10th of the economy is expected to be lost for ever.

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A weak outlook is also expressed in the last week RBI statement, by providing no guidelines to GDP & Inflation, but extending moratorium to August stating that the economy may not be completely re-opened shortly.

Ours is a developing country with huge population of 1.3 billion people of which about 13.4 percent are extreme poor (earning less than $1.90 per capita, per day) and 50.4 percent are in lower middle class (less than $3.2 per capita, per day) making it more than 650 million people. Poverty is likely to increase due to COVID-19 as source of income & employment has been lost.

As per a 2018 survey by World Bank, 78 percent households in the lowest category, do not wash hands with soap before meals. The government cannot afford to completely open the economy and increase the public transition rate.

Neither can we expect that the corporates would take good responsibility, safety and job assurance of labourers & family. Unorganised sector is hugely impacted which accounts for 85 percent of India's labour force of 50 crore (unorganised are basically small business including MSMEs and SMEs).

The best strategy could be to limit the spread of virus and then re-open in a phase wise manner with developing better capacity of control, safety, equipment, test, treatment and health infrastructure.

Rationally, the stringent norms may continue in India at least in the short-term. Currently, we may not be able to participate with developed economies to re-open the economy. On a positive note, in the long-term, we will come out as a good contender since the belief is that the countries which are less impacted with low economic consequences will emerge faster post COVID-19.

At the same time, the world wants to diversify its outsourcing from China to other emerging countries and surely it will have a positive effect on a large dynamic country like India.

Lately this week, India has started to catch-up with the world equity market. India has factoring all the merit & demerit of the stimulus announced by the government. Now, it is anticipating a better economy in Q2, which may be partially opened while a full opened economy could happen by H2FY21.

It is also expecting that an opened global economy will have a ripple effect on India especially for export-oriented companies & sectors. At the same time, big equity deals announced by banks with foreign investors has changed the outlook on banks which were the worst hit in domestic equity market, Bank index was down by 42 percent. Better valuation provided by FII has brought some confidence in banking sector that it will be able to overcome the crisis as economy re-opens. The market is also expecting more reforms by the government for corporate and sector which are highly impacted by the pandemic.

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.
First Published on May 30, 2020 02:04 pm
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