Impact of Corona on Financial Market

The Impact of Corona on Financial Markets

No wonder that the Corona pandemic has turned the world upside down. Across the globe, more than 185 countries have enforced complete isolation to contain its spread. Manufacturing activity has come to a standstill. The roads give a deserted look.

 

In fact, the situation is so severe that it has applied brakes on 167 years of non-stop movement of Indian Railways. Something which never happened even during the World Wars.

 

Social media is abuzz with the claim that it’s a biological weapon. If you read history, you’ll find a long list of such conspiracy theories.

 

One such theory says: To win over French enemies in 1495, Spanish sold them wine bottles contaminated with leprosy patients’ blood. The other one says: To intensify the outbreak of Malaria among his enemies, Napolean flooded the plains of Italy.

 

Whether Corona deserves the same attention or not, no one knows except China. Whether it’s a medium to overpower the World’s economic super-powers, everyone believes except China. What I can essentially show you is the impact of a pandemic on Dalal Street by seeking some wisdom from history.

 

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India has a long history of outbreaks. Since 1990, the Nation has witnessed more than 8 outbreaks. Plague in 1994. SARS in 2002. Swine flu in 2014. And now, COVID-19. Among all the pandemics, COVID-19 seems to be the most fatal.

 

Industries have been shut. Many sectors have suspended their operations. Hotel. Aviation. Cement. Real Estate. Tourism. You name it, it’s highly likely that it’ll be on the list. 

 

For how long Corona will continue to spread its wings and impact the financial markets, no one knows. Not even China!

 

But certainly, we can learn by observing the market’s behavior during earlier outbreaks. Let’s try to explore what really happened then.

 

Plague in 1994

(26 Aug – 18 Oct)

Originated in Surat, this outbreak is remembered for the panic it created. In less than 2 days, more than 3 lakh people migrated from the city. 56 people lost their lives. Flights to India were canceled. And the impact on Sensex? It slid down by 6.83% during this period.

 

Impact of plague on Sensex

 

An outbreak that received international attention could make a dent of just 6.83% in the index. The markets were hit temporarily, stayed flat, and continued to rise until the dot-com era of 2000.

 

SARS

(Nov 2002 – May 2004)

This respiratory syndrome sent shockwaves across 27 countries by infecting over 8000 people. It continued to touch its new peak for the initial 8 months. But took more than a year to saturate. During this interval, it killed more than 700 people.

 

A similar pattern was observed in Sensex. An increase in infection rate clashed with a slide of more than 14% in the index. However, the fall took a V-shaped recovery once SARS began to saturate. And recovered by more than 30% in the next 6 months.

 

 

H1N1 Swine Flu

( Dec 2014 – May 2015)

The H1N1 outbreak killed more than 2000 people since its onset in 2014. By mid-2015, it had infected more than 33000 people in India. However, due to better awareness and healthcare facilities, the outbreak was controlled in no time.

 

Even during this outbreak, the index was not immune. It witnessed a decline of not more than 11%. And as soon as the circumstances improved, it took a sharp recovery in the next few months.

 

 

Similar behavior was observed during Ebola and Zika outbreaks too.

 

When Ebola knocked at the doorstep, the index tanked by 3%. But witnessed a sharp recovery of more than 20% in the next 5-6 months. During Zika, the market plunged by more than 13% during the initial 3 months. But took less than 6 months to recover by more than 18%.

 

Back to Corona

(2019 – Present)

 

Since its outbreak, it has infected more than 30 lakh people worldwide and claimed more than 2.4 lakh lives. Global healthcare systems have been exposed. Consider The UK. It boasts of the world’s most efficient healthcare practices. And it has already bent down on its knees. 

 

India, on the other hand, has managed to control the community transmission even after being the 2nd most populated country in the World. What makes India better than The UK? Or The US where the death count has recently surpassed 68.5K?

 

An effective decision to ban international flights. A practical approach to quarantine individuals with foreign travel history. A powerful resolution to lock down the entire nation. All these collectively have managed to keep the official death count at 1981 (as on 9th May) with a strong recovery rate of 27%.

 

So far, even after taking these many measures, it has turned out to be most deadly in terms of impact. From halting the economic growth engine to claiming lives, from migrating millions of people to disrupting millions of businesses, it has forced all of the states as well as countries to figure out a common solution to a common problem by skipping everything else altogether. But no luck so far.

 

The Indian financial market is not exempt either.

 

It has cracked by more than 12000 points from its peak of 42K. At one instance, it witnessed its largest single-day decline. And observed its largest single-day recovery too. That too on the same day. And the same date.

 

Sometimes, the stocks recover. The other times, they fall even lower. And continue to repeat the same cycle until they hit a new bottom.

 

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After studying the impact of prior outbreaks on financial markets, it’s evident that the markets took a hit in the range of  7% to 15%. Investors began to sell as if India was not prepared to handle it. As if there was no tomorrow. As if there was no ray of hope. The odds of surviving the game, all of a sudden, looked bleak.

 

But the sell-off changed its course as soon as the outbreak began to saturate.  At one instance, it recovered after a short spell. The other times, it took not more than 6 months. But the ones who chose to believe in the Indian healthcare system survived the roller-coaster ride.

 

Currently, the markets appear to be pessimistic. Even after announcing stimulus packages and moratoriums, the days of recovery appear to be gloomy. Imposing a nation-wide lockdown will surely have expensive economic repercussions. But not important than saving lives.

 

Whether it turns out to be as deadly as the Recession of 2008, we can only speculate. The clear picture still seems to be blurry.

 

But the only thing I can say is – the setback will be temporary. The breakthrough will be even quicker. Stay positive. Stay stronger. Stay invested.

 

On a positive note, a lot many companies with impeccable management and excellent fundamentals are available at a discount. Refine your portfolio if you already have one. If not, it’s time to build one. Buy more if your cash position allows you to do it. Sit tight. And avoid playing with it. The paper losses will soon turn green.

 

 

No matter what happens, we’ll beat it the way we have beaten all of them in the past. 

 

As my dear friends, Amit and FI say: This too shall pass! 

 

Stay safe. Don’t break the lockdown. Feed the poor. They need our support more than anything else during these distressing times.

 

If you enjoyed reading this post, you’ll probably love reading:

Wealth is What We Don’t See

The Amazing Power of the Long Game Plan

3 Ways to Survive an Unplanned

 

PS: The cover image has been taken from Deposit Photos

 

Dhruv Girdhar | RichifyMeClub

 

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6 Comments

  • SHRIPAD MARKHELKAR

    May 9, 2020

    It’s good analysis. Comparative study. Nice advice during end. Right approach. i follow you on Twitter. Thanks

    Reply
    • Dhruv Girdhar

      May 10, 2020

      Thanks for reading, Shri. Glad that you enjoyed reading it 🙂

      Reply
  • Himanshu Chauhan

    May 10, 2020

    Thanks dada for this writing 👌🙏

    Reply
  • dnyaneshwar

    May 15, 2020

    Nice article. Easy language, powerful impact.

    Reply

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