An outbreak of COVID-19 could indicate catastrophe for India’s 176 million impoverished citizens who live there and who have the world’s lowest levels of sanitation and medical care, according to the World Bank’s statistics.
This pandemic, COVID-19, had a negative impact on the economies of several countries, including India. As a result of the government-ordered lockdown, everything in the world’s most populous nation came to a crawling halt. The global market economy has collapsed, oil prices have collapsed, and unemployment has risen as a result of the pandemic COVID-19, which has afflicted practically every country in the world. It wasn’t long until COVID-19 had an influence on India’s economy, development, growth, and stock market.
How severely were businesses impacted?
According to the results of a poll, Indian companies had operational and financial difficulties due to the epidemic. The manufacturing industry was the worst affected, with 71.31% of enterprises reporting decreased cash flow as a result of the lockout. The tertiary sector, in particular retail, non-profit, consulting, education, and financial services, has also been a key source of worry for delays and cancellations. While many firms reported a decrease in project cancellations and an improvement in cash flow after the lockout, the optimism in the respondents’ perspectives is obvious.
In the wake of these obstacles, companies have learned to adapt, which has resulted in a shift in their long-term strategies. A rise in confidence in the market and targeted government actions have made businesses less likely to cut costs quickly.
There were fewer cases of deferred payments (11.5%) and salary cuts (43.3%) in the post-lockdown period than in the lockdown period (19.4% and 57%, respectively). In the wake of the shutdown, companies are shifting to lower-cost raw material suppliers and decreasing operating expenditures like marketing spending. Despite this, the reliance on virtual meetings has stayed consistent throughout the two time periods, indicating that remote work may be the “new normal”.
Impact on different types of businesses
According to experts and industry organizations, India’s worst lockdown may have harmed the Indian economy by Rs 8–12 lakh crore over the 21-day period that halted a majority of industries and enterprises, delayed flights, stopped trains, and limited movement of cars and people during the lockdown.
In a report published in April 2020, Acuite Ratings & Research Ltd calculated that India’s GDP suffered a deficit of about USD 4.64 billion (over Rs 35,000 crore) during the lockdown, with the full 21-day lockdown resulting in a loss of over USD 98 billion (about Rs 7.5 lakh crore).
The transportation, hospitality, and real estate industries are among the hardest hit.
The repercussions of the shutdown on Indian real estate are:
- As a result of the COVID-19 campaign, Deepak Parekh predicts that real estate values may drop by up to 20%.
- According to the rating agency India Ratings, demand for residential real estate is likely to drop in the financial year 2019–20 (FY20), after exhibiting a minor increase in FY2017-2019.
- Customers have stayed away from major marketplaces like the MMR (Mumbai Metropolitan Region) and the NCR (National Capital Region) and, to a lesser degree, South India because of the COVID-19 fear.
With the potential of dropping sales in existing projects and the postponement of planned launches, the residential market is on the verge of becoming the next Black Swan in an already fragile industry.
The lockdown’s effect on Indian restaurants:
- 50% of restaurants were closed during the lockdown; Zomato and Swiggy had a 10% decrease in sales. Food services are one of the industries most impacted by the pandemic.
- For more than 100 days of lockdown, restaurants’ organization NRAI (National Restaurant Association of India) is requesting landowners, such as malls, to skip leases and common area maintenance payments. The NRAI predicts that its members will lose up to Rs 80,000 crore in 2020.
The effect of the lockdown on the stock market
As a result of the COVID-19 strike, the markets have been teetering on the edge of panic. There have been market declines on a scale not seen since the 2008 Global Financial Crisis. As the BSE Sensex and Nifty 50 plunged 38%, there was a significant link with global market patterns and indicators. At the beginning of the year, the overall market value fell by a startling 27.31 percent. Foreign and local investors have been affected by this epidemic, and the stock market has mirrored that mood. It’s been a rough couple of months for businesses; layoffs have been increasing, and employee remuneration has been reduced, resulting in little development. Stocks of firms in the hotel, tourist, and entertainment industries have fallen by more than 40% in the wake of the financial crisis.
The anguish of the devastating epidemic on the Indian stock market has been thoroughly explored by Mandal (2020). Research shows that the BSE Sensex has seen the biggest single-day drop of 13.2 percent, which has eclipsed the notorious plunge of April 28, 1992. The Nifty has plunged 29%, surpassing the 1992 stock market meltdown. It is only the FMCG companies that have benefited from this shift in consumer behavior, while other firms have seen their profits fall sharply (Rakshit & Basistha, 2020).
The global stock market was affected by the COVID crises
- The COVID-19 pandemic is causing high and escalating human costs around the globe, and the essential protective measures are having a significant negative effect on economic activity. As a consequence of the pandemic, the world economy is expected to collapse by –3% in 2020, which is far worse than the contraction seen during the financial crisis of 2008–2009.
- Baseline scenarios presume that the epidemic will wane in the second half of 2020 and that containment measures will be able to be progressively unraveled over the next several years. Global commerce is expected to have declined by 5.3% in 2020, but it is expected to rise by 8.0% in 2021, according to estimates.
- Forecasters agree that the economic slump in 2020 will be less severe than previously anticipated, in part because of the fiscal and monetary measures that governments will implement in 2020. Economic growth in the majority of nations decreased drastically in the second quarter of 2020, recovered quickly in the third quarter, and has been primarily favorable since that time.
Forecast for the future
After a period of abnormality, the market will continue its transformation in the following months as investors believe that they are going backwards in time. There was an 11-year bull market, interrupted by the black swan event of the pandemic (a rapid dip, followed by an otherworldly climb), before the present personality of excessive volatility emerged. The market may be recognizing the fact that rapid economic growth and a bull gallop aren’t sustainable for the foreseeable future.
- A return more in line with historical trends will be seen in the market over the next one to three years. In my view, the DJIA’s path to 50,000 by the year 2027 will not be slowed down by this normality return.
- While growth stocks (particularly those in the IT sector) are expected to decline in performance, dividend aristocrats, which have a long history of consistent performance and dependable dividends, are expected to rise. Many exchange-traded funds (ETFs) based on this notion, such as NOBL, include the names of these firms. At the moment, several of these stocks are showing signs of being good value investments. The aristocrats, for example, utilize genuine earnings to pay dividends to attract and maintain investors, while many emerging and growing businesses do the same.
- Additionally, the aristocracy’s dividends, which are taxed at a lower rate (15% for many currently) than capital gains, would enable investors to position themselves for both their consistent earnings and qualifying dividends. In an environment when bond rates are essentially nonexistent, and stocks’ rising connection with one another means that aristocrats like 3M and Caterpillar Inc. provide less risk protection than bonds due to the mix of low taxes, dividend yield, and consistency.
The final conclusion
Despite the fact that these crises are genuine and have an impact on the global economy, such crises have traditionally rarely persisted for lengthy periods of time since the globe is capable of finding solutions to these issues.
Given the difficulty of predicting the scope and impact of the coronavirus on the economy, it is probable that the markets will recover quickly once the crisis is over. Considering an average annual return (CAGR) of around 15%, the Sensex has grown from 100 points in 1979 to well over 41,000 points in 2019. The results of the Sensex once again show that corrections are transient, but growth is persistent.
Also Read: Essential Financial Measures for Businesses Post Covid-19 Pandemic