Covid-19 Paralyzed Economy?

Long-term investors should buy into extreme bouts of volatility

- Yagnesh Kansara

The coronavirus outbreak is like a Lehman Brothers moment for the corporate world but in a much larger sense, particularly for the emerging and developing markets. The Lehman Brothers crisis was only limited to impacting the banking/ financial markets, associated with financial aspects of corporate with respect to raising capital and capex. The crisis did not have any impact on the general growth and consumption cycle of India, China, South Asia and West Asia. Furthermore, the crisis was limited only to the banking level and had not spread to the day-to-day functioning of most companies.

The stock markets, as measured by the benchmark indices, have fallen by around 25-30 per cent this year, and for once this has been in sync with global markets as a whole. This heightened volatility and the general risk-off attitude in the global markets is due to the uncertainty and fear created by COVID-19 and the unprecedented actions of the governments to contain it.

Coronavirus is a serious set-back to the economy in the short-run and a death knell to the financial sector in the long term if this menace does not stop. Mainland China and Hong Kong‘s experience is that corona can be thwarted and controlled. However, it is to be seen how this stops worldwide.

India is relatively insulated given the relatively weaker link to Asia’s supply chain. Given that the incidence of coronavirus has been surprisingly low in India (probably aided by under-reporting but also helped by warm weather) and assuming that it does not increase in the coming weeks.