EFFECT OF COVID-19 ON STOCK MARKET

The global economic community has been plunged into uncertainty because of COVID 19 and that has shown its effects on the global financial community. According to a recent International Monetary Fund report, they estimate India’s growth to go down to 1.9% from the 5.8% estimated in January warning that “the worst recession since the Great Depression” which will leave the economic damages of the scale never seen before. The good news rather is that the only two economies who are expected to register a growth are India and China. The basis of this theory lies due to the fact of rich supply of natural resources and cheap labour available in these massive nations by population as well as land.

This global hysteria because of COIVD19 has affected the atmosphere in the Indian markets and made the investors apprehensive which can be seen with the foreign investors diverting their investments to the dollar backed assets. The price to earning ratio of Sensex is less than 18(17.81 as of March 31st,2020)(Price to earning ratio is seen as an indicator)which is far less than the historical range between 20-24. Markets along large, mid and small caps have corrected sharply from their peaks.

COVID 19 is what is known as a Black Swan Event. There have been such events throughout history which were not expected and have a large effect on the status quo by disrupting human activity and creating havoc. The after effects of such events leaves tremendous tension of the lands and their people. Despite the losses, the economic growth has always seen to gain a peak after the end of such events and later on again gain a rather constant form.

Investor sentiments have taken a beating because of which inspite of the number of cases in India being lower than other countries Indian markets have lost close to 26% in terms of dollars between 1st February and April 9th. Their global counter parts have fared relatively well with European and the US markets falling 20% and 14% respectively. The Emerging Markets which are represented by MSCI EM index has seen the decline of 15%. Ironically China, where the virus has originated has been the least affected market with a mere decline of 3%. This gives a huge advantage for this country in the upcoming decade where the latter nations would be struggling for their economic survival.

Markets have certain mechanisms in place for certain scenarios and halt trading which are known as the ‘circuit breakers’ , activated for the first time in 12 years on 13^th March to control the situation and stabilize the market. Technically speaking ,these circuit filters or circuit breakers are a band of upper and lower limits within which a benchmark market index can fluctuate on a particular day.

What does this situation mean for the everyday investor? Not the best time one would say but all the regulatory bodies are doing their best to come up with revival solutions. Warren Buffet rightly says,“Games are won by players who focus on the playing field – not by those whose eyes are glued to the scoreboard.” So gaining knowledge at this moment and constantly applying it in the latter periods to put a step ahead of one’s opponents is what most successful investors would be really looking through. The outcome completely depends on how quickly the pandemic will be brought under control. The uncertainty that lay ahead will surely add to the volatility of the market but if someone can make the right decisions now when the risk is high would be rewarded accordingly. To most this situation is a backbreaker but to some this is a blessing in disguise!