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Looking Beyond the Moment

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A lot is being said about the outbreak of coronavirus. There is panic among share market investors in India. Even our investors are expecting us to give them a lot more clarity in the current time.

Here are 5 small points that the share markets in India are ignoring completely, may be due to panic, but we would want you to look at to understand how the current situation should be looked at, why this is not the time to panic but to look for opportunities:

1. Coronavirus – Threat To Our Health, But Good For The Economy’s Fiscal Health

If we go by the current rate of crude oil $35-$40 a barrel, India is saving $20-$30 bn on crude oil imports. This amounts to 0.5% to 0.8% of our GDP. It is a huge saving for us as a country – whether government decides to pass on this saving to the consumers or keep it to improve its fiscal math, the fact remains it will definitely boost investments into our country if government keeps it with them. And, if they decide to reduce the petrol and diesel prices and pass on this benefit to the end consumer, it will improve the consumer spending which will further boost the economy.

2. Boost To ‘Make in India’?

Apart from crude price, as a country we import other items worth approx. $300 bn a year and export revenue also comes around $300 bn a year. Now for a country of our size, i.e. $3 tn GDP, these figures show how less dependent we are on the world economy. Yes, there would be a few items which if we couldn’t import, will adversely impact the performance of a few sectors or prices will go higher for some items. But let’s not forget 2 things –

a. We are capable of manufacturing most of the items that we import in our country. Yes, we may have to pay a little higher, but as you know it gives boost to manufacturing in our country and helps in bringing growth in the economy.

b. If we look at the monthly figures, it is $25 bn import and $25 bn export every month. 1 or 2 or 3 months disruption will not be able to impact these figures by more than $25-$50 bn. So how much we really need to be concerned about this? We believe very little!

3. History Is Also Saying – Don’t Panic!

Share markets in India have gone down by more than 20% in the last 15 days. We tried to give a lot of reasoning to understand if such a steep fall could be justified by the outbreak of coronavirus as it is widely believed. As I write to you, we have a total of 1,26,666 reported cases worldwide, 73 in India and China the epicenter of this disease reported only 18 new cases today.

Now if I may request you to rewind your memory by 15-20 days, you will realize China was reporting most number of new cases and exactly 20 days later we are not discussing China anymore.

After China, it was South Korea reporting most number of new cases for a few days, now even they have reduced to 114 new cases reported today. Today Europe is reporting most number of new cases followed by the USA, who knows like China and South Korea 15 days later, the kind of measures these countries are taking, they will also show a steep reduction in new cases. And 1 month later we all will forget about this.

You may do this exercise and check that most viruses including Ebola, Sars, Mers in the past have peaked in 2 to 3 months and we are already in the third month since the outbreak of coronavirus.

Honestly speaking, we could not understand how come long term prospects of a good business whether in our country or for that matter in any other country have changed so much in 15-20 days that it could justify the kind of fall we have observed in the share markets in India as well as in the other markets. If I may go to the extend saying this fall is irrational in our understanding, and in fact offers an excellent opportunity to a genuine long term investor who is serious about his wealth creation journey.
Read more about best investment opportunities currently available in the market here.

4. Glass Half Full Or Half Empty – Depends On How You Look At It

As we have seen in the USA, FED has cut the interest rates by 0.5 percent, Bank of England has cut interest rates by 0.5 percent. What we believe, given this outbreak for the foreseeable future, there is no risk of inflation. Hence, the entire focus will be on boosting the growth worldwide, so we are expecting interest rates will be cut by most other countries including India to boost growth.

What it means for you and me – (a) it becomes cheaper to borrow money (b) helps in increasing consumer spending and hence boosting the growth (c) it becomes more attractive to invest in a little riskier asset class like equity since you are not getting enough by investing into debt instruments – bond, FD etc.

Interest rate reduction is not the only stimulus, most people in almost all the affected countries are expecting their respective central banks to announce even other stimulus to boost confidence and boost growth.

This will result into excess liquidity available and finding avenues to invest, as I said in such a situation, equity as an asset class emerges as the best asset class, and India as a country emerges as one of the most preferred destination.

5. Are You All Set For The Takeoff?

Finally what you have heard in most of the interviews given by the share market experts off late, this outbreak provides an excellent opportunity for India to attract some of the companies to set up their manufacturing base in the country.
Yes, we have reduced corporate tax rate and this surely have made it more lucrative for international companies to set up their base in India. Now, it is about taking swift action and ensuring we provide all other infrastructural support and approvals if we are serious about capitalizing on this opportunity as a country.

Read more:  How Long-term investing helps create life-changing wealth – TOI

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