Will Extension of the Lockdown Further Affects the Economy & Markets?

Will Extension of the Lockdown Further Affects the Economy & Markets

With the rising cases of COVID-19, the respective chief ministers of different states of India have requested Prime Minister Narendra Modi for extension of the 21-days lockdown to at least end of April. Even though the PM hasn’t made any announcement in this regard but as per the latest resources, the PM Modi will address the nation at 10 am on April 14 (last day of 21-days lockdown). However, further lockdown is necessary to contain the spread of COVID-19 into Stage-3, it may also kickstart the downward sentiment in the capital markets. It will be a thing to see that now that lockdown is the need of the hour, how the Indian economy and capital markets will react to the extension of the lockdown?

How the Extension of the Lockdown Further Affects the Economy & Capital Markets?

The Indian economy is going through a phase that even the central bank ‘Reserve Bank of India (RBI)’ refused to give any growth projections for the Indian economy in upcoming years. Meanwhile, Moody’s Investors Service slashed the projected GDP growth of the Indian economy to 2.5 per cent from 5.3 per cent for the year 2020. However, Goldman Sachs has cut India’s real GDP to 1.6 per cent from 3.3 per cent for the year 2021.

According to the former RBI Governor, Raghuram Rajan, the Indian economy is going through the most difficult phase of emergency since independence. As per Mr Rajan, the global financial crisis in 2008-09 was a massive demand shock but the employees and work still go to work contrary to the current situation where India is under lockdown due to pandemic which forced businesses to suspend operations amid coronavirus.  

Besides, many companies from telecom and pharmaceutical sectors facing supply-chain disruptions in inputs received from China in manufacturing mobile phones and medicines respectively. As a result, the businesses in Indian are dealing with the supply shock and if the companies still closed under the further extension of lockdown, there will be a production slowdown which will affect the sectors and ultimately, Indian economy. 

Indian is a country where the Agriculture sector plays a major role in the growth of the economy. Agriculture sector significantly contributes to its economy nearly $265 billion to the GDP and employs more than 60 per cent of the country. Unfortunately, the coronavirus outbreak happened to be at such time when the crops must be harvested and sold in time. The absence of labour force and transportation will have serious implications in the growth of the rural economy in India. If the lockdown further extended, the government should take some necessary measures to ensure that the Rabi crop and other products come into the market without any disruption.

The major sectors that are most affected by the coronavirus are – real-estate, automobile, and banking. The real-estate sector is going through a tough time due to the funding crunch. On the other hand, the production in the automobile industry has been put on hold. As per Care Ratings, the automobile sector could see volume decline by 15-16% in FY20. It is a matter of time when the slow-down in the real-estate and auto-sector will start affecting the steel manufacturing industry in the country.

The benchmark indices of the Indian stock market have fallen more than 35 per cent from its lifetime high of 12,430 in just a couple of months. If we leave the up-rally of Wednesday, most of the Nifty50 stocks were in the tank near their 52-week lows amid coronavirus pandemic which caused massive selling-offs in the market. Even in a single month, the Foreign investors have sold over Rs. 60,000 crore worth of equities. As most of the Nifty50 stocks were stocks of blue-chip companies, many mid-cap companies become more attractive to investors with long-term investment goals.

Though short term impact would be limited as the market and investors are already expecting the likelihood of the extension in lockdown which has already priced in. However, if the lockdown further extends to April 30, then it would be troublesome because the panic selling has already caused so much damage to the market. In case, the lockdown extended, it may bring more volatility in the market that may destroy investors’ sentiments and bring more panic-selling in the market.

But, it would take more than months to kickstarts the economy and capital markets. In the meantime, the investors should be cautious with investment decisions and buy stocks in a staggered process as we do not see any recover in 2-3 months. The only thing investors should keep in mind that fundamentals are intact of the companies they are planning to invest in. While you are at it, try to avoid stocks of companies that are directly impacted by the coronavirus pandemic.

Disclaimer: The views and opinions at Invest19.com are expressed by the experts are for educational purposes, not to profile any professional advice to encourage users to make investments. Invest19.com advises users to check with the certified experts before making any investment decisions.


Leave a Reply

Your email address will not be published. Required fields are marked *