All of us areaware by now the havoc that
has been caused by COVID 19 all over the world, especially in Europe and USA.“The
worst economic crisis
since 2008”, “The FTSE sees its biggest hit since 1987”- intimidating isn’t
it?It’s because saying “It’s a setback” and “We will recover” doesn’t gain the
media hits that publicising fear does. We recovered from outbreaks ranging from
the #SARS epidemic
to the Spanish flu, the greatest pandemic in modern history. Influenza hit the
economy at a time when financial institutions weren’t half as robust as they
are today, and even weaker due to World War 1 and the economic catastrophe
it caused. But we came through, didn’t we?
Expert speculation relies on empirical
evidence to the extent that logic and faith is undermined, and it is why such
speculation is not a perfectly reliable measure to predict markets and their
movement. Hence, in these uncertain times,Lakewater feels #optimism is
the only tool at our disposal, and it would be rather wise to use it.
Despite, there was late onset of Corona wave in India, the panic continues to be there. However, looking at certain scenarios, which we shall discuss later in this report, India has a better stand. It is certain that COVID-19 is classic example of “black swan”; rare occurrence and massive impact. With the widespread of Corona Virus beyond China, there has been a drastic fall in the Global equity market,since it is proportionate to sentiments. S&P 500 index showed a decline of ~30 % in 22 trading days from 19th Feb. The fall in market is at much higher space than SARS (2002); even 2008 Recession for that matter.Following USA, India too has passed Stimulus packages, in order to lift NIFTY.As on 15th April, NIFTY stood ~8,800.
Outbreak of Corona
The novel Corona outbreak took placein
China’s wet market, Wuhan.By December, the virus had expanded and touched every
corner of the globe. Looking at the alarming levels of spread and severity, World
Health Organization declared Covid-19 has global risk which required immediate
Looking from health perspective, India has
done a commendable job by initiating the Lockdown on 25th March to
contain the spread. India has learnt from its global peers, and called out for
lockdown at an early stage of outbreak.With a population of ~1.38 billion,
India has reported 396 deaths (15th April, 2020). India is reporting
0.3 deaths/million as compared to 79 deaths/million in USA.
Corona Impact on Economy
If we speak about our Economy, recently, we
have been facing rough times and abrupt advent of Covid-19 has further
amplified the negative sentiment, such as
- ~$180Bn of annual exports and
imports are linked to highly exposed countries – US, Europe, UK, Iran. Off
late, Trump and Modi were discussing certain measures, which would have
increased the trade between the two, now the same is put to halt.
- 25% of India’s workforce, are
casual labour;facing the direct impact of lockdown
- Auto, Travel, Consumer
Durables, Construction are facing the downside. The discretionary spending on
any fashion and luxury goods, shall be getting the hit, as the spending power
shall be conservative in near future.
However, every cloud has a silver lining.
Given the ambiguity in current situation,
it is difficult to develop opinion and quantifying economic impact. Yet, we
have tried to focus on positive key parameters among the sea of negative
Imposing lockdown at an early stage, has
given Indian economy a ray of hope and saved us from a disaster. Let us look at
the following factors –
relationship has become more toxic, between the trade war and Coronavirus.
International firms have figured it in a hard way, how vulnerable their
globally integrated supply chains are. This hasprompt international businesses to
think about diversification of their production across numerousnations. This
should benefit India in the medium term, as firms would want to bank less on
China as their lone manufacturing hub. Hence, we expect a moderate rebound of
economic growth in 2021 and beyond.
Since, there might be trade disturbance between China and global market. India can take this situationas an export opportunity window to expand its exports. It is difficult to comprehend this opportunity, given India-China trade relations. However, over the last 5 years, there is slight decrease in India’s dependency on China.
India is now attempting to develop
ecosystem in India.This might be the perfect time promote and accelerate “Make
in India”. Given India’s has lower labour cost as compared to China, complete
ecosystem should be developed to manufacture for global market.
India’s growth may be slashed to 2.1% but
given the projection, looks like India will show the highest rate of GDP growth
among G20 countries. Also, as per EIU, India will be among top three countries
in G20,along with China and Indonesia that shall avoid recession this year.
Industries to be Benefitted
Due to Lockdown, there is an upside in the
industries of Digital Media, Consumer staples and Telecom. Further, the Consumer
sentiments are depicting that there shall be spurt in essentials, savings,
health & wellness, at-home entertainment, and education over the period of
next 6 months.
Resistance of Indian Economy
Looking at the past crises, Indian economy
has shown resilience through V shaped recoveries.
- Asian Financial Crises (1997)
- Agricultural Crises (2002-03)
- Global Financial Crises
- Demonization (2016-17)
2008 Recession can act as a starting point to recover from this fatal economic blow. However, the speed to recovery is dependent on multiple drivers.
The near-term damage shall be significant.
- There is a downward shift in
Digital Payments in March since Feb. This is expected to fall further by ~20%
- Due to the EMI moratorium,
credit cost is expected to be elevated in FY21
- Discretionary expenses shall be
deferred, which shall impact other fintech offerings.
Lakewaters is positive on long term bet in Indian
economy. Since, we are comparatively less dependent on exports; our exposure
shock in context to world trade shall be less. Low price of crude oil shall
also cover us from external shock. Overall, we are expecting that PE
investments shall remain strong and shall have V shaped recovery soon post this
Nonetheless, we hope, you stay at home and