As you may be aware, markets globally and in India are currently pricing in the impact businesses will face due to supply chain disruptions & due to temporary changes in consumer trends. We’d like to offer to reach out to you at this time to give you our views. As you’d expect from us, we’ve recently been doing our best to keep ourselves informed about the spread of the virus and the impact it could have on businesses.
Most economic agencies have reduced their temporary growth forecast rates due to the impact the virus could have during the next year or so. We feel that it’s currently difficult to predict the exact extent of temporary damage. Agencies and asset management companies haven’t yet done the detailed math on the businesses that have parts of their supply chain in affected areas and the exact resulting impact. Consumer trends also would be difficult to predict at this juncture. For example, while trends like drop in airline traffic to majorly affected parts are easy to see, a drop in poultry consumption in India by 50% is more difficult to predict.
As you will see from easily available public information, businesses and stock markets have always bounced back after means of curtailment have been found to such a pandemic. Of the 12 pandemics that have faced us since 1980, the MSCI world index (commonly used global stock market index) ended positive on 9 pandemics 12 months after the initial breakout. On the other 3 the index was less than 5% down 12 months hence. This is not to say that you shouldn’t expect near term disruptions and unexpected scenario; however we’d also not like to panic too much.
The silver lining for India and our economy is that a very small portion of it relies on exports. Most products that are domestically consumed can be manufactured in India without any component inputs from China or other ASEAN countries. Most central banks have promised an accommodative stance and the resulting extra liquidity will be good for markets. Low oil prices mean a reduction of tens of thousands of crores in India’s import bill.