Coronavirus – A Pandemic Plaguing Global Money Market

The coronavirus outbreak has triggered a state of crisis, and its tremor is being felt across the globe. The Indian money market, which stayed relatively unscathed for a while, slumped down several points, creating panic across the economic spectrum. 

With the rising number of cases on home ground, the Indian economy is currently enduring a steep plunge due to disrupted supply chain and a fall in investor sentiment. A slow recuperation of the economy is set to lose momentum as India orders a lockdown for 1.3 billion population, indicating a significant blow to the economy in the future.

As the tally increases, India is prepping for the fallout of the pandemic. The lockdown is expected to decrease GDP in the current and following quarters, while the economic gloom persists through the rest of the year. Although the government has been proactive to take the necessary steps to quarantine people, shut borders, and airline to curb the outbreak of the pandemic, the economic outlook of the nation seems to be painting a grim picture.

A Black Swan Event 

Coronavirus, which started in China, spread like wildfire across the globe. The rising number of cases has not only triggered a panic situation but also spooked investors and businesses worldwide. This prompted a strange divergence among those trying to predict what coronavirus might mean for the Indian financial market and the world economy. 

Research and analytics firm Dun & Bradstreet stated that at least 51,000 companies worldwide, 63 of which are Fortune 1000, are directly tied up with one or more direct (or tier-1) suppliers in the impacted region. As per the firm’s most recent Economy Forecast, India’s chances to”remain decoupled” from the global meltdown seems to be thin. As lockdowns are forced in other worldwide manufacturing centres, the degree of debilitation to the global supply chain and growth is probably going to increase. 

Additionally, global forecasting and quantitative analysis firm Oxford Economics predicted that the expanse of the virus to territories outside Asia would knock 1.3% off growth worldwide. 

This has raised concerns on the world economic growth and has kept markets across the globe restless. The pandemic outbreak indicates that there is a significant risk that global economic growth could get thwarted since China deems 12% of the world’s GDP rate.

Touted as the black swan event for markets, the coronavirus outbreak is currently having a ripple effect around the world. As indicated by a UN report published in March 2020, the trade impact of coronavirus in India is predicted to be around $348 million. The report stated that the disruption could cause a $50 billion decline in exports across the global supply chain.

In a recent report, S&P Global Ratings has brought down India’s 2020 growth rate to 5.2% from 5.7% evaluated before, referring to a worldwide recession as a collateral impact of the Covid-19 pandemic. The report further predicted India among the most impacted nations vulnerable to capital outflows. 

On the investment front, the virus contagion has contributed to investors’ concerns and impacted the movement of stocks, triggering panic selling. 

Amidst such a situation, investors need to wait and let the market settle down before allocating any significant funds to direct equities. However, as the number of cases increase, India should brace for an economic slowdown.

Impact On The Business Sector

Coronavirus – which started in China has impacted India’s economic growth, causing significant disruption across multiple sectors, including manufacturing, oil, financial, and others.

In February 2020, the Trade Promotion Council of India said that India imports approximately 85% of active pharmaceutical ingredients (APIs) from China. This dependency on China could lead to raw material supply disruption and price volatility. 

What’s more concerning is that industries like travel, aeronautics, hospitality, and trade are bearing the heat of the restrictions imposed by the government. Traders in India have evaluated $4.04 million loss in the course of recent months. 

Many organisations have witnessed a sharp decline in their growth rate in the last three months. Companies that were on target are now struggling to meet their Q1–2020 plans as the impact of the pandemic swells up.

However, on the upside, FM Nirmala Sitharaman announced a comprehensive economic relief to deal with the impact of the pandemic. Through the  Rs 1.7 lakh crore relief package, the government aimed to focus on two aspects – cash transfer and food security-related measures.

The Bottomline

The past weeks have been a rollercoaster ride for the global markets. Fear of an overall downturn because of the spread of coronavirus has frightened investors’ emotions, with Indian benchmark indices falling over 20% this month, in accordance with numerous other worldwide indices.

Moody’s Investors Service has cut down India’s 2020 growth forecast to 2.5% within just weeks of its past downgrade to 5.3%, referring to rising monetary expenses of the coronavirus pandemic. The firm said that at the 2020 estimated development rate, a sharp fall in earnings in India is likely, further stressing on the domestic demand and the pace of recuperation in 2021. 

In the midst of raising worries over the spread of coronavirus, fear is that the worldwide GDP and trade will get influenced. Recently, shares across the globe rallied as the U.S sanctioned a $2 trillion aid fund to assist companies and household tackle the pandemic outbreak. Further, on the home ground, the market bull seems to strengthen hold with investors getting richer by Rs 4.70 lakh crore as the total market capitalisation of the BSE-listed firms jumped several points. Following RBI’s reduction of the repo rate by 75 basis points to 4.4% in response to the current situation, banking stocks emerged as the top gainers in the trading as on 27 March 2020. 

Heading to such a situation, where market stability is a matter of concern, investors should look out for unconventional asset classes that react differently from the conventional investment instrument. However, it is yet to witness whether India can ease policies and pitch itself as a solid investment destination and the next manufacturing harbour for companies globally.