Coronavirus Impact on Indian Stock Market

Coronavirus has a contusing effect on China which hasn’t fully come out of the trade war with the United States and now the coronavirus has left its economy expanding at the slowest pace in the last three decades. Thousands have been killed and thousands more are severely infected from coronavirus which putting the brakes on China’s economy. India also reported the first confirmed case of coronavirus infection on 30 January 2020 in the state of Kerala. The one who found affected had travel history from Wuhan, China. In addition to it, there were two more cases coronavirus cases confirmed – one from Telangana and second from Delhi.

However, prior to that, there were many multiple suspected cases reported in cities such as New Delhi, Bangalore, Mumbai, Patna, and Hyderabad. The NSE Nifty as declined 10 per cent since Jan. 20 while other major indices of the Wall Street and European market has seen a significant decline in times of coronavirus. Up until now, the Indian market looked like the only ‘Safe Heaven’ among other Asian indices but with the two more cases, the Indian stock market may not escape unscathed.

The epidemic led to a slowdown in China which have a ripple effect across the globe, and to some extend – Indian stock market. India and China have a trade relation with annual trade of ~$90 billion – wherein Indian imports goods worth $75 billion and exports goods worth $15 billion. With the supply disruption, the supply shortages affecting Indian market and impacting companies of India who had to suffer from low levels of inventory. Apart from this, the pharma companies heavily rely on APIs (active pharmaceutical ingredients) imported from regions of China that are mostly affected by the coronavirus outbreak. This will lead to a temporary contraction in imports till the time some normalcy is not restored in China.

If that continues even for a couple of months, then consumers may witness prices inch higher that would ultimately, drive the inflation. This, in turn, makes it difficult for the monetary policy commissions (MPC) to provide a further boost in monetary policy.

The current situation depicts that the imports are likely to contract more than the exports which could be the opportunity for India as China is the biggest exporter to India, followed by the US and UAE. This could be a time for India to fill in the gap and find ways to reduce its dependency on Chinese imports such as computer hardware & peripherals, industrial machinery for dairy, electronic components, telecom instruments, and organic chemicals.

Also, there is good news that coronavirus does not survive in extreme temperatures that make it beneficial for emerging markets like India as winter is drawing to a close and summer sets in. Soon, we will see the market surging and economic activity picking up the pace from next quarter on. Still, the country’s lower rate of coronavirus infection cases are seen as a positive factor for the stock market and the country’s market may soon become more attractive to foreign investments.

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