“WHO” Calls COVID-19 a Financial Rebound- A Statement or a Question?

Posted On - 20 March, 2020 • By - Rhea Susan Verghese

The Wintered Tale of COVID-19. WHO Calls COVID-19 New Financial Rebound

“If you’re born poor, it isn’t your mistake but if you die poor, it indeed is your mistake!” With the outbreak of Coronavirus (“COVID-19”), the main concern is and should be saving lives but another aspect of thinking would crack a consumer’s brain to, ‘what about personal finances?’

The Chinese Rat Year of 2020 meant prosperity, but unfortunately, COVID-19 occurred at the time when the economy was already showing signs of a global economic go-slow in terms of real GDP growth at a mere 4.7 per cent[1]. 

In
addition, COVID-19 has jostled the monetarist markets and brought a stirring
standstill to the demand and supply chain. In India, since February 2020, where
crude oil and equity prices have sharply fallen, petrol and gold are
snowballing because of the indecisive safe haven reliance they are bred within.
Worldwide, equity prices on stock catalogues have also fallen.

Has
COVID-19 made India a Bull Market or a Bear Market?

A fair look at the Indian stock market tells us that we have consolidated into a bear market in the wake of the COVID-19 outbreak. What’s a Bull and Bear market? A Bull lunges its horns up in air connoting raising prices and a Bear jabs its paws connoting falling prices with regard to stock indices.

Let alone the stock market, companies, MNC’s, operators and manufacturers have been presaged of a heavy hand on their pockets due to the economic upshot resulting from the pandemic. A gigantic drop in stock prices has led the National Stock Exchange into the Bear territory as of March 12, 2020, and Bombay Stock Exchange is not far from the wrath.

Circumstantial
data provides that we have not fallen further than 25-28 per cent and recovery
insight is a possibility. The last time India faced the wrath of a bearish
market was 2015 and it took almost 2 years to stand up on its feet. India was
not a foreseen epicentre of the pandemic at the rate of trouble we stand at, as
of today. The impact of falling stocks in India has dampened the banks and led
them into a bear market, the resultant of which pushes us into thinking that
how are we then expecting a bull market for our stock indices anytime
soon?  The sharpened tumble in stock
market prices showcase an attractive but very risky proposition for investors
in India and worldwide.

Commotion
in one business would mean disruption in many other businesses from many
countries considering the connecting factors that bind each of them together in
some way or the other. A drop in business is resultant of a drop in finances
gradually and automatically affecting the economy as a whole. For example, the
Indian market stopped its supplies in the roll of dropping demand, but the very
stop was because their supplies from China came to a standstill. COVID-19
showed its wakened presence in the form of falling markets and threats of
recession, and the reasons why investors show skepticism when it comes to
investing. 

Economically,
India does not stand stout because of the upsurge in non-performing assets
(NPA’s). Banks and capital institutions will have to be weary of the impending
lockdowns for this, in turn, will lead to a zero-revenue situation holding many
starving mouths to ransom.

An Apocalypse Packed in a
Suitcase Bomb

No
one really presumed that a little micro-organism would create a global fiscal
shudder. For India in specificity, it turned out to be a twin throw up.  The very fact of having to edge the economic
impact of the pandemic and that too in an already slow economy. The last time
India got locked into the bear territory was 2008 and now again almost a decade
later. Given that the statistic of COVID-19 hasn’t seen many casualties in
India as compared to other epidemics in the past, we can still see the effect
in terms of financial dropdowns.

Globally
if looked at, the jeopardy of recession is real in terms of diminished
demand-supply chains. The international economies were already sinking, and now
in the wake of the virus outbreak, we are looking at a global recession.
Stunted economic growth would mean a slow revenue growth which would shake the
roots of an already settled financial system whether nationally or
internationally. In situations of the like, the onus is more on the banks and
governments to take stabilized actions. From an Indian perspective, the Reserve
Bank of India is going to have to step up in terms of systemic stability
otherwise the market crash will never revive.

The instantaneous
impact of this apocalypse was seen in the form of travel bans in the tourism
sector, which in a way led to a financial crunch and a glut in the finance
economy. COVID-19 weakened the rupee by 3 per cent, thereby trading the Indian
rupee at almost INR 76[2]  against 1 US dollar. This has also led to
foreign investors pulling out of the domestic markets. The virus outbreak has
soured all relations between Indian equities and bonds and same

can
be refurbished through bank intervention if done in a stabilized manner.  

Contributed By – Siddartha Karnani, Partner
& Rhea Susan Verghese, Associate

King Stubb & Kasiva,
Advocates & Attorneys

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