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Will the Coronavirus (COVID-19) really impact the Stock Market?

By Nivesh Gyan   3 March

Category: General

Globally markets have been under pressure of  COVID-19 outbreak, including Indian markets. 

However, we need to be objective in our assessment of the impact, particularly if we have invested keeping long-term in mind.
 
Let’s first look at the performance of indices during such panic situations in the past:

 

Outbreaks (Years) SENSEX World Index
1 Month (%) 6 Month (%) 1 Month (%) 6 Month (%)
SARS (Apr-2003) -7.89 37.9 8.64 21.5
AVLAN (H5N1) (June-06) -6.39 26.97 -0.18 10
Cholera (Nov-10) -8.39 -6.28 -2.35 13.61
MERS (May-13) -5.13 1 -0.29 8.58
RUBEOLA (Dec-14) -4.16 -3.2 -1.71 2.29
ZIKA (Jan-16) -6.81 3.38 -6.05 -0.57
Corona Virus -7
Source: Economic Times

 

Key takeaways:

  • As you can see from the above table,  during the deadliest outbreaks in the past, markets had corrected in the short term but delivered handsome returns from that point post correction.
  • Chinese markets have started doing better now indicating normalization of the situation.
  • Number of people infected have started coming down in China
  • Apple has mentioned that they are resuming their 85% stores in China.

Benefits for India 

It is also expected that the developing situation will help India on many counts:

 

  • Crude oil prices have corrected from $68 to $50 level. This is a very good thing for a country like India where a lot of dollars is spent on import of oil.
  • We are running a large trade deficit with China ($50 Bn officially) which will come down as the imports have come down. Additionally, we were importing certain unnecessary items from China which we could manufacture in India.  Now we will be forced to look for alternatives within the country.
  • India is the 2nd most preferred country to outsource the goods by 65% of American companies (from 3000 surveyed companies), which showcases the growth opportunity for India.
  • India can capture the supply chain disruption from China arisen due to coronavirus
  • Due to Coronavirus, there will be an increase in the price of certain items like consumer electronics, mobiles phone, pharmaceuticals etc. As we know India is one of the top exporters of pharmaceuticals, and price increase will benefit companies in the industry.
  • The sluggish industries that are heavily dependent on crude oil such as aviation, shipping, road, and rail transportation are likely to gain from a sudden drop in crude oil prices due to the coronavirus.
  • Consumer Inflation won’t be impacted by this outbreak as most of the inflation is coming from food prices where there is no impact of coronavirus. Overall yields are softening across the globe for short, medium and long term which will have a positive impact.
  •  Reserve Bank is pumping money and cutting interest rates to improve the liquidity and ECB, Bank of Japan and FED (USA) together will pump-in liquidity and cut interest rates.

Investors get good returns if they keep investing during the panic situations in the market. These times shall too pass. Our recommendation is to continue to stick to your long term investing strategy to build wealth.