Markets spooked by corona, may settle once cure emerges: Nilesh Shah

The bloodbath seen at Dalal Street and markets across the globe has been driven by the fear of coronavirus and bearish sentiments may only get changed once there is comfort in the markets that the deadly virus will be cured, Nilesh Shah, MD, Kotak Mahindra Asset Management Company has said. In last 30 days barring Chinese markets, most of the global markets have fallen between 10-30 per cent spooked by the coronavirus spread. The fall across the world is as sharp as 2008 which was a financial crisis. Dow jones has moved from all time high to 20 per cent correction, a bear zone in just about 19 working days. It`s the fastest ever in their history.

Dalal Street has also been on a free fall for past few days with both Nifty50 on the National Stock Exchange and the BSE Sensex hitting their lower circuit in early morning trade on Friday resulting in trading to be halted for the next 45 minutes.

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According to Shah unless a medical solution emerges, there is less likelihood of markets to settle down. "Lower oil prices, lower interest rates, higher liquidity and lower trade deficit with China will not be discounted by the market till such time there is a medical solution for coronavirus," he said in a Concall over present developments. He said that for India, the fundamentals have not yet deteriorated as much as China, Italy or Iran, but the markets are pricing that India will not be able to contain coronavirus scare.

"Rightly or wrongly this perception is pushing Foreign Portfolio Investor`s to sell their Indian holdings. The persistent and intense selling by FPIs is resulting into sharp drop in prices. Hopefully, we will able to change that perception by containing coronavirus like we contained Nipah virus in Kerala some time back," Shah said putting hope on India`s hot and humid climate to help change the perception faster.

In China, through lockdown and aggressive quarantine, coronavirus spread has largely been contained in a reasonable period of time. Today, China seems to be recovering and their market is marginally positive over last 30 days compared to world markets which are down 20 per cent. Shah said that medical solution for coronavirus was important as Indian markets are not discounting some facts that indicates that all is not as bad as is being perceived.

"In October 2008 at the peak of subprime crisis our Market Cap bottomed at $ 510 billion. Our market cap to GDP ratio was 43 per cent at that point of time. Currently, our market cap is $ 1.68 trillion. Our market cap to GDP ratio is 56 per cent. From Market cap to GDP ratio we are becoming cheaper," Shah said.

On the oil front, crude prices have come down from $ 68 per barrel to $ 35 p er barrel. Every drop of a dollar in Oil prices benefits India by $ 1.4 bill ion. If oil prices persist at this price level than India will benefit by $ 4 6 billion.

Moreover, the current situation will also help to reduce country`s trade deficit with China. India`s trade deficit with China is about $70 billion, including routing from other countries and havala payment. (Officially - $58 billion). Shah said that India could save $10-12 billion as Chinese exports will be impacted due to coronavirus scare.

Another positive on the present developments is that Central banks around the world are cutting interest rates and pumping liquidity. The US Fed cut rates by 33 per cent or 50 bps on a base of 1.58 per cent. Bank of England cut rates by 66 per cent or 50 bps on a base of 0.75 per cent. There is expectation in the market that the RBI will also lower interest rates to support growth that should boost investment and growth.

The current situation also presents India with an opportunity to attract larger investment. "There is likelihood of shift of manufacturing from China to other countries as the firms start diversifying their supply chain. India can welcome those companies to become part of global supply chain. This can support India`s growth for years to come," Shah said in his note