This is Day 18 of the Lockdown which was supposed to be 3 days before the original lockdown ended. However in the conference call with the PM today most of the CM’s have asked for an extension till the 30th of April which I think is Fait Accompli now. The economic and market impact need to be measured properly

  1. As per my calculations assuming a 60% GDP loss till the 30th of April i.e. for around 39 days and 40% after that for one month on a partially operating economy the GDP Loss will be as below. Assumption is total Annual GDP of Rs 200 Lakh Crores
Time Duration Percentage GDP Loss Total GDP Loss
22nd Mar-30th April 60% Rs 1280000 Crores
1st May – 31st May 40% Rs 679000 Crores
  TOTAL Rs 1950000 Crores
  • This essentially implies we will lose 10% of the Annual GDP output over the next two months. In this situation the scenario becomes very tough for the country as we will need a 5% GDP growth for 2 years just to get back to where we were before the Covid19 crisis broke out. We can do better and worse than this but it will depend on the Fiscal Policy of the Government combined with Economic Reforms
  • As far as the Covid crisis goes despite a complete lockdown the worst or we could say the most in the world the Virus is reasonably controlled in India however cases have been growing every day for the last 4-5 days after a stable period for 3-4 days. The first 18 days of the lockdown unfortunately doesn’t seem to have been used to strategize and plan to get ready for opening up after 21 days but just in responding to the crisis on a day to day basis. Lets hope that the next 14 days are more about strategy so that we can have some return to normalcy soon.
  • Currently only food products and medicines are being largely treated as essentials and a huge shortage has been created for products like soaps, detergents, toothpastes etc again many essential products of daily use. The supply chains across the board from raw materials to manufacture, packaging, dispatch etc has broken down as the government initially shut down most companies and workers started leaving factories, companies cut down services required to start back and by the time the government responded it was late. Despite transport of goods of any category now being allowed we still see that inter state movement is being restricted
  • Globally the response of the Central Banks and Governments have been quite swift on the Coronavirus response. The Fiscal Stimulus in most countries has been between 4-12% and the proposed stimulus from Japan is around 20% of GDP. India is still at around 0.5% of GDP which does not move the needle at all. One important thing to realize is that we don’t have a Social Security net and Unemployment benefits. For example in the USA benefits at 40-50% of the previous salary upto 26 weeks. In France workers upto 50 years of age can get benefits upto 2 years and above that for 3 years. Minimum being 514 Euros to a maximum of around 6000 Euros. In Germany its around 60% of the previous salary for 1-2 years. In Italy one of the most impacted country due to Covid19 workers can get upto 75% of the previous salary with a cap of around 1200 Euros. In Spain its 70% of the last salary for six months and 50-60% subsequently. Under the circumstances many armchair analysts should not try and compare India with rest of the world. In India most of the contract and daily workers who have already lost jobs or will lose jobs over the next 4-6 weeks will have nothing to look forward to.
  • Coming to the stock markets I believe that there are two scenarios. I am reasonably sure that the Mid March bottoms will hold in the stock markets across the globe. However markets are not going to go up in a straight line. In my view the first of the pull back rally got over last week. The reality of actual economic disruption will set in now and we will see markets correct somewhat over the next 2-3 weeks. Since it’s a wide range from the bottoms to current levels any corrective move could also be quite significant. Secondly the extent of correction will also depend on the response of various governments. For example in China where stability is returning fastest markets should hold up. South Korea which has handled the crisis without a severe lockdown should hold up well etc. The second scenario is that over the next 3 weeks one of the various drug trials come out with a conclusive treatment regime. That will make the second wave of sell off less severe and we could see markets do better. Its tough to say at this stage which scenario will play out

Overall we have seen stock markets rally up over the last 2-3 weeks driven by government stimulus as well as expectations of a possible peaking of Covid by April end. However economic outlook is tough and as results season plays out we will also see many companies being unable to give any concrete guidance. Those on cash should only deploy slowly over the next few weeks. It will be tough for the markets to carry forward the kind of rally we have seen last week.

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