Coronavirus (COVID-19): How much harmful is corona for world economy? What should we do? What should investors do in this era of viruses i.e. Coronavirus.

Economics

Coronavirus (COVID-19): How much harmful is corona for world economy? What should we do? What should investors do in this era of viruses i.e. Coronavirus.?

There are many questions come to everyone’s mind regarding Coronavirus (Covid-19). Share market is facing one of the biggest fall due to corona virus. Hence investors are in panic. Everyone’s portfolio is red even mutual fund is also giving negative return.

Nifty made its top i.e 12400 in January 2020 and from there is has fallen to 8500 on 13th march 2020. This largest fall in terms of points in such a less time. Today on 18th march 2020 nifty is near 8500. Now investors are in tension that all money invested has become less than half, should they invest more or start doing mutual fund. We tried to analyse the situation with the help of following points:-

Analysis of Coronavirus data till 18-3-2020:

As per coronavirus data available on website www.worldometers.info , Till 18-3-2020 (10:24 am )There are 198521 cases of coronavirus detected all over the world, out of which 82763 are recovered and discharged from the hospital. 7988 people are dead due to corona virus. Hence active cases are 107770 out of which only 6415 are critical.

A summary of coronavirus data for last approx. 80 days.

Total cases of coronavirus:  198521

Cured/recovered:  82763

Deaths: 7988

Active cases: 107770

Serious cases out of active cases: 6415

Death rate of coronavirus as per age of patient:-

80+ years old             14.8%
70-79 years old         8.0%
60-69 years old        3.6%
50-59 years old         1.3%
40-49 years old           0.4%
30-39 years old           0.2%
20-29 years old           0.2%
10-19 years old          0.2%

0-9 years old              no fatalities

Now please see following data

no. of people due everyday all over over the world (as per wikipedia): 150000

total deaths in 80 days : 80 X 150000 = 12000000 (one crore twenty lakh)

deaths due to heart disease (126 per lakh deaths)= 120 X 126 =15120

deaths due to TB (17 per lakh deaths)= 17 X 126 =2142

Now everyone can analyse that death rate due to coronaviurs in not higher enough to create panic situation. But it does not mean that corona is not dangerous but we need not panic. We should:-

-avoid crowded area.

-eat healthy food & strengthen our immune system.

-wash hands at regular intervals if visited outside home.

-avoid touching/hand shaking.

– follow instruction of your doctor in case of any symptom.

Some years before, one virus Nipah was detected in Kerala state of India. NIpah virus infection in humans causes a range of clinical presentations, from asymptomatic infection (subclinical) to acute respiratory infection and fatal encephalitis. The case fatality rate is estimated at 40% to 75%., Which is very high.

Impact on corona virus on world economy till now:-

As per website moneycontrol, “A vast majority (52 percent) of those polled say the GDP will come down by around 50 bps, while 22 percent expected the hit to over 1 percent in FY21, forcing the RBI to respond by reducing the repo rate by 25-50 bps sooner than later, according to 57 percent of the respondents.” Many economies of the world are highly impacted by corona virus, Government issued various notification: Closing of schools & colleges, malls, cinemas and appealing people to avoid crowded area.

Some industries are highly impacted like tourism, travel, IT , Entertainment, Cinema etc. To stop the corona virus from spreading, various businesses are closed like malls, cinemas. Outing activities of people are restricted. Manufacturing and services activity are hard hit by Coronavirus. Till now services are more hard hit than manufacturing.

We are not saying, corona is deadly or not but world is at panic and even if corona is not deadly but action taken by various Countries to stop spreading this corona virus and media stories may be helpful for stopping virus spreading but economy is going to be affected at large. Step by Step analysis is given below:-

1. Due to reduced outing of people and due to closing of various institutions, Cash flows of various companies will be impacted negatively. But some of companies may see high cash follows as online shopping increased due to reduced outing and people are buying more food items online. But corporate at large have to face reduced cash flow.

2. Due to reduced cash flows, companies will not be able to pay their EMI on time. At present, world in more deeply in debt as it was at the time of 2008 crisis. Since 2008, larger debt has sifted form households to limited companies. Companies get cheaper loan and in the name of security shares of listed entities are provided, whose value is falling due to corona virus. As per various reports, The level of debt in America’s corporate sector amounts to 75 percent of the country’s gross domestic product, breaking the previous record set in 2008. Among large American companies, debt burdens are precariously high in the auto, hospitality and transportation sectors — industries taking a direct hit from the coronavirus.

Due to reduced cash flow, companies will not be able to pay their EMIs and bank have to consider it as NPA. But this is at such a bigger level that many banks will have to face capital crunch due to this situation. Hence various share market index around the world have faced the fall of more than 30%. Philippines is the first country to shut its financial market for some time due to corona impact.  Some other countries are also thinking about it but nothing can be predicted.

3. Banks are the base of any economy, people deposit their money in banks and banks lend this money to various corporates, which if not able to pay it back to bank then how can bank return money to depositor. Hence government is trying it hard to control the spreading of coronavirus so that businesses of corporate world can run as normal so that cash flow of business is not impacted for long.

 

What should Investor do:-

Investors are in huge pain seeing falling their portfolio and some are even unable to exit the market due to lower circuits in various stocks. Market around the world have fallen more than 30%. But Market have faced bigger things , it has seen crisis of 2008 and dot com bubble and even the murder of prime minister of India in 1984 & 1991. But every time market came back and give handsome return over long run. Bottom can not be predicted but this is a temporary situation. Those who buy at such time, have higher chances to get high return. What should investor do;-

  • Avoid short selling and also avoid F&O trading. Market is highly volatile. You may gain in any trade but loss trade will be bigger.
  • Find the diamond in ashes. and buy some good stocks having strong fundamentals and having less impact of situation outside India. But buy in less quantity so that we can buy on further fall as bottom can not be predicted.
  • If not having much financial knowledge to find good stocks, Investors may pick some mutual funds as mutual funds bought at such time give high return in long run. A large cap fund may be beneficial in long run over small & mid cap. High risk taking investor may choose sectoral funds for FMCG & Pharma.
  • Investor should not sell their portfolio in panic as such situation is not going to stay and we will able to handle the deadly virus soon.
  • Nifty was already facing a resistance near 12400 hence corona created high panic for nifty and it touched the lower trend line near 9500 but it broke it and heading toward support line near 6500 but it may change trend before this line. We should start picking some gems are less price but avoid buying huge quantity as bottom can not be predicted.

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