Black Monday (9 March 2020) was the day when three Wall Street indices fell more than 7%, causing severe volatility in markets across the globe in response to the standstill that the Covid-19 pandemic brought on. This was the worst drop since the financial crisis of 2008.

China, home to 1.3 billion people, the largest importer of consumer goods, the world’s largest manufacturer, the biggest importer of crude oil and the top spender in international tourism has come to a grinding halt, crippling the world along with it. Covid-19 has raised many concerns, having both a medical and an economic impact on nations across the globe. Besides the evident health repercussions, an economic standpoint raises these top four concerns that organizations across the globe are currently facing: the possibility of a global recession; reduction in consumption of goods and services; detrimental financial impact; and the effects on the workforce and their productivity.

The scenario in India

Unfortunately, for India’s economic scenario, the pandemic is not wholly at fault. A myriad of both fiscal and economic changes, beginning from 2016 to date, have played a vital role in the slowdown we are witnessing today. The impact of demonetization or the implementation of goods and service tax (GST) or the Real Estate Regulatory Authority (Rera) may have been a shock to the economy at first, but could have proven beneficial in the long run.

The Indian market hasn’t been able to catch its breath. The bankruptcy of IL&FS in September 2018, an AAA-rated company that defaulted on infrastructure loans backed by several banks, non-banking financial companies (NBFCs) and the mutual fund sector, sent the markets into a dizzy spin, striking fear into even seasoned investors. The after-effects of the NBFC crisis, combined with complications like GST, Rera, adoption of BS-VI norms, added to the liquidity crunch, causing the dwindling purchase of automobiles and real estate. Then we saw the shadow of a banking crisis in Punjab and Maharashtra Bank and Yes Bank. The plummeting oil prices did come to our rescue but then Covid-19 hit, bringing tourism to a halt and causing the loss of an opportunity to optimize on the oil price. The slowdown has lasted for over two years now as India receives one blow after another.

Then and now

The 2008 crash of the US market was due to the downfall of several over-leveraged financial institutions. The ripple effect caused the housing market crash in the US, which then saw the bankruptcy of Lehman Brothers, which was one of the largest investment banks in the country. The economic domino, which proved that “when America sneezes, the rest of the world catches a cold", had its effects on emerging economies like India. Foreign institutional investors (FIIs) withdrew immediately, leading to a crash in our stock markets and depreciation of the rupee. The crisis was felt for a while but its after-effects were, to a certain extent, predictable, unlike the current market crisis due to the pandemic.

Unlike in 2008, the current market scenario is caused by a medical crisis. The fact of the matter is, as of today, there is no way to predict the extent or duration of the spread of the pandemic, and we cannot project when the paralyzed global economy will revive. What we do know is that once curative measures are found, India will bounce back to normalcy and business will kick off as usual. Yes, the dependency on FIIs in the fourth quarter may see a setback due to loss of optimism in the emergence of Indian markets and will have a cascading effect on the rupee. But, on the brighter side, we may have a window of opportunity to leverage the oil crisis and use the drop in oil prices to our benefit. In addition, we have the advantage of a paralyzed Chinese market, which is beneficial for Indian competitors, especially in the unorganized market. Larger corporations across the globe, who base their manufacturing strategies solely on China, may now consider expanding operations to India, with the latest added advantage of a deep cut in corporate tax.

What’s next for investors?

Volatile markets usually cause chaos in the minds of investors due to their behavioural tendencies. You must keep a check on your biases so as not to let them get the better of you. Staying invested is the key now. The turbulence the markets are facing will eventually die down while trade and life will return to normal and so will the economy. Let the long-term investments in your portfolio remain untouched, as the current fluctuating market changes will barely have any effect on them. For the willing and dynamic investors, the volatility in markets may last for a little longer—this is a good opportunity to take advantage of a falling market while keeping a tight rein on your risk capacity when investing surplus income. While we await the end of the pandemic, the restoration of some normalcy to life and the resurrection of trade, let us hope for the best and at the earliest.

Tarun Birani is founder and CEO, TBNG Capital Advisors

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