Corona Virus Effect on the Indian Financial MarketsBy
Akhila Masapogu, 18-Mar-2020
The Coronavirus has surely taken the world by the storm. No one could ever predict that a virus like Corona could create such havoc across the globe.
The alarming levels spread of this deadly virus has not only led to an increased number of affected cases and deaths but also have created panic situations across the world. The novel Coronavirus renamed as COVID- 19 is now declared as a Pandemic, owing to its spread to 166 countries across the world, according to a recent report issued by WHO.
The first outbreak of this virus occurred in December 2019 in the city of Wuhan in China. This virus exhibits a close genetic resemblance to the SARS virus that occurred in China in 2002. Italy, Iran and South Korea are the top countries followed by China that have declared the largest outbreaks so far.
Mr.Tedros Adhanom Ghebreyesus the director-general of the WHO said that the situation will worsen and it is not only a public health crisis, but it will affect every sector, and every individual so we have to be prepared for the battle.
The history globally never recorded any financial crisis caused naturally without the intervention of humans ever before, as deadly as the corona. The damage caused and expected to be caused by Coronavirus couldn’t even be estimated by the industry experts so far. The fact that a natural Pandemic led to the meltdown of the Financial markets and stunted the growth of economies around the world is making the future unpredictable.
Impact on Financial market
Covid-19 is one of the largest threats that the global markets ever experienced. The effect of China’s market slowdown has directly and indirectly affected the exports, internal trading and the economy of countries around the world.
India also witnessed decreased revenues and economic growth since the arrival of the deadly coronavirus in the nation. The production halt of Chinese markets has led to a fall in the economic activity of India.
Especially the financial markets have experienced pressure, volatility, and uncertainty. The performance of the stocks and bonds has taken a plunge with the fear of coronavirus at the end of February and continue to exhibit inconsistency in their performance. The equity market all around the world has taken a step back and slowed down increasing pressure on the investors.
Sectors like electronics, chemicals, pharmaceuticals, tourism in India are likely to experience a cutdown on imports from China. A negative demand for prolonged periods can, in turn, affect the GDP of the country and can have long-lasting effects on our economy.
But on the brighter side, the coronavirus outbreak can be looked like an opportunity for Indian markets across sectors to increase the production capacity and boost the “Make in India” campaign.
With so much turmoil in the domestic equity markets, the investors are on a lookout for safer options that are backed by physical assets.
Performance of the Financial markets
The contemplations of further spreading and worsening of prevalent situations due to coronavirus have created a fear in the investors of the equity markets globally.
To start off with the interest of the whole nation ‘Stocks’, their performance from the past few months has been unstable. Stocks have been extremely sensitive to market situations. Stocks fell by 3000 points on Friday 13th March and then have risen by 1500 points the next day.
The fall in crude oil prices due to the price war between Saudi and Russia also was one of the causes that lead to the global stock market crash on 9 March 2020.
At this point now investors don’t even know when to start trading as there is no correct information to predict the future of the country or the world.
Bond yields have also exhibited a sharp decline, which is recorded as the first time ever since the 2016 cash ban that the Equity earnings exceeded the bond yields. The earnings of Nifty outperformed bonds by 45 bps this weekend.
Companies may also have a tough time because investors are showing less interest to lend them money, especially less-creditworthy businesses might suffer more in the present scenario.
Crudeoil prices data
The demand for many commodities has decreased adding to the present scenario of collapsing financial markets. China is the highest consumer of commodities like metals, edible oil, etc and the decreased trade within this nation is the main reason that has caused the commodity market to slow down.
The combined effect of coronavirus and the recent Saudi and Russian war are leading to the fall of crude oil prices. The price war was started by a breakup in the dialogue between the OPEC and Russia over oil production. Oil prices have decreased by 30% since the start of the year due to a drop in demand.
Housing prices data over a period of six months
But contrary to the traditional financial markets the Real Estate sector continues to stand tall even in these difficult situations. A report by CBRE confirms that there has been no direct impact on the market so far. However, the Asia Pacific special report revealed that there might be a short-term slowdown in purchasing activity across the Asia region, with many investors postponing investment decisions and moving into wait-and-see mode.
One reason that Real Estate has not responded to the current market changes is that it was not given enough time to absorb the economic changes and the stock market changes so far. We sure might see some effects later but we are hopeful it is not going to be negative. Luxury Real Estate in India might witness an indirect impact wherein the business decisions relating to real estate might get delayed, the construction costs may increase as India imports Iron and steel from China, which in turn, can lead to decreased profits, but the investments are unlikely to experience any negative effects as the Indian reality proves to be an unbeatable investment option. Also due to the lack of better and safer alternatives for investment the investors are believed to get back to Real Estate once the Pandemic mania decreases.
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COVID-19 has seriously impacted the sentiments of the financial markets. The performance of the stocks has become unpredictable and bond value dropped to the lowest since 2010. These situations have also damage investor sentiments severely.
There has been a brief slowdown in the Indian economy since the pandemic outbreak. Especially the manufacturing and production industries that depend on China on imports have been impacted. Industries like Automobiles, electronics, and tourism have been severely impacted so far.
Unlike the traditional markets like stocks and bonds Real Estate has been slow to react to the COVID-19 impact. There is expected to be a brief pause for the projects under construction and projects that were supposed to be launched in the meantime will be postponed.
During the initial stages when the cases are low the stock market had no changes. However, once the cases began to rise the markets fell by a huge margin in India. Even though the case increase is not uniform across the countries, the trend in the fall was similar in all of them.