Gauging Coronavirus impact on economy, industry, stock market; how long India can remain insulated

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March 3, 2020 12:40 PM

Even as the Indian economy strives to recover from a slowdown, the Coronavirus outbreak has further hit the possibility of revival given the negative impact on the various sectors of the economy.

Coronavirus india, Coronavirus in delhi, Coronavirus update, Coronavirus symptoms, Coronavirus news, Coronavirus latest news, Coronavirus cure, Coronavirus vaccine, Coronavirus death toll, Coronavirus chinaAs the economy battles a new scare, stock markets are witnessing fresh volatility negatively impacting investors.

Even as the Indian economy strives to recover from a slowdown, the Coronavirus outbreak has further hit the possibility of revival given the negative impact on the various sectors of the economy. As the economy battles a new scare, stock markets are witnessing fresh volatility negatively impacting investors. With the cases of Coronavirus getting detected in India, the sentiment is expected to further go down. Here we analyse the negative impact of Coronavirus’s impact on the domestic economy, industry, stock and currency market.

Economy

After the GDP growth rate fell to a 7-year low to 4.7 per cent in Q3FY20, owing to a fall in manufacturing, Coronavirus scare is emerging as another challenge staring in the Indian economy’s face. “While business sentiment was fading on the back of the Covid-19 outbreak, the actual effect on production and sales was negligible. The production index remained elevated, while new orders continued their sharp rise of the past couple of months. The Covid-19 outbreak remains a risk, but the fall in oil prices, coupled with higher rural incomes should work as mitigating factors to the negative global shocks”, Barclays said in a report.

“We believe a weaker China and global growth, and disruptions along the supply chain (China share in India’s goods imports was 14% in CY19) (Figure 10) are likely to have some adverse impact on India’s growth in the Mar-20 quarter. For instance, sectors such as electronics, pharma, automobiles, etc, could see supply disruptions in the value chain”, Tanvee Gupta Jain, Economist, UBS Securities India, said.

Industry

Even as Finance Minister Nirmala Sitharaman recently said that the government may soon announce measures to help industry limit Coronavirus hit, the pharma and automobile industries are already seeing the impact.

Pharmaceuticals: Given the pharmaceutical industry’s deep linkages to China, the supply chain of raw materials of drugs has taken a hit. The production facilities in Himachal Pradesh — largest pharma hub of Asia — have warned of suspension, according to a report in The Indian Express. The price of paracetamol has almost doubled since January 2020. APIs, also called bulk drugs, are significant ingredients in the manufacture of drugs. The Hubei province of China, the epicentre of the coronavirus, is the hub of the API manufacturing industry.

Automobile industry: The auto industry which is already seeing the worst slump in nearly two decades is facing the heat as supply chains get disrupted. “The disruption caused by coronavirus has hit the automotive industry and thus also affected the automotive component and forging industries,” AIFI said in a statement. China is one of the leading suppliers of auto components in India, accounting for 27 per cent of the total exports. “The coronavirus is expected to have an impact on the Indian automotive industry and therefore also on the automobile component and forging industries, which had already reduced their production rate due to the market conditions and on account of the impending change over to BS-VI emission norms from BS-IV from April this year,” AIFI President S Muralishankar said. Tata Motors, Mahindra and Mahindra (M&M) and MG Motor India on Sunday said they are facing challenges in terms of component supply from coronavirus hit-China.

Stock market

The stock markets across the world have remained highly volatile in the last many days. In India, the 30-share BSE barometer on Monday closed 153.27 points or 0.40 per cent lower at 38,144.02, and the broader Nifty closed lower by 69 points or 0.62 per cent at 11,132.75. The Sensex has fallen nearly 1300 points from highs. The long term charts like weekly/monthly time frame indicate that 11,000-10900 is going to be a strong support zone for the market and there is a possibility of a bottom formation around these areas in the next few sessions, Nagaraj Shetti, Technical Analyst, HDFC Securities, said.

“The markets would continue to track the global indices which are under stress as Coronavirus is expected to adversely impact global supply chains. There are reports that US GDP growth will slow down considerably in Q1CY20, while fears of a recession are impacting European markets”, Ajit Mishra, VP – Research, Religare Broking, said.

Currency

“We opine that not only local, but global investors and traders would find it worth their time to consider positions in USDINR contracts as a standalone hedge asset class as a response to COVID-19 during these trying times in the global markets”, Ranjan Chakravarty is Economist and Product Strategist at Metropolitan Stock Exchange, said.

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