Coronavirus Impact Musings – India

Amar Pandit , CFA , CFP

On 27th March 2020, I had written a post about the Coronavirus impact on the US economy, government response, markets and some food for thought around it.

At that time, the US had around 83000 odd cases of Coronavirus infected people. Today New York State has more than 92743 cases with the US crossing 245, 000 cases. The White House is now predicting 100,000 – 240, 000 virus deaths in the US alone. President Trump warned on Tuesday that the next 2 weeks will be very very painful.

I had given a formula that governments world over are following to address this crisis.

The Formula = Monetary Policy Action + Fiscal Policy Action + Coronavirus Containment (Reduction in number of cases or a possible cure or eradication)

I had written what the US government is doing on this formula. Today I wanted to touch upon what we are doing here in India.

Monetary Policy Action 

RBI has acted swiftly on this front and infused liquidity in the system through various means. They have reduced the repo rate by 75 basis points which lowers the cost of borrowing for banks and thus for consumers. Additionally, all financial institutions allow a moratorium on payment of EMIs on Term Loans by 3 months. This means that you do not have to pay EMIs (if you opt for this) from 1st March 2020 to 31st May 2020. However, the tenure of your loan will get extended and you will have to pay the loan in full. Every bank will come with their own version so understand the terms carefully. Similarly, there is relief for working capital interest. Additionally, RBI has huge foreign exchange reserves (at around $ 480 billion dollars) that it has used in recent weeks to stop the Rupee Fall.

Fiscal Policy Front

Finance Minister Nirmala Sitharaman, on March 26, announced few relief measures for those who are directly impacted by the pandemic worth Rs. 1.70 lakh crore ($ 22 billion). In absolute terms, it may seem like a big number but how much can this package support those in need and how much can it revive the sentiments is a big question.

Just to put things in perspective, Rs. 1.70 Lakh Crore package is just 0.80% of the Indian GDP (which is close to $3 trillion) as against a mega relief package announced by the US congress of $2 trillion which is close to 9% of the US GDP (which is close to $22 trillion). There is talk that the US will need further fiscal stimulus in the months to come.

Daily wage workers are going through a lot of pain and they must be supported in these tough times. On the other hand, small businesses in many industries are going through solid pain and there will be massive layoffs in the SME sector. According to a report small business have cash of around 27 days to survive. Obviously, this will vary from industry to industry and business to business, there is real pain here. A lot of Small and Medium size businesses have no access to credit and thus rely solely on their revenues to run their business. Small businesses could survive from a term loan support of 3-6 months of payroll expenses.

It’s always surprising how banks lend thousands of Crores to so many wilful defaulters but won’t lend a penny to small businesses. This is the time where small and medium size businesses need support to survive as there are more than 11 Crore people working in such enterprises.

There is a lot that needs to be done on the Fiscal side immediately and this is clearly not the time when India worries much about the fiscal deficit. This is the time to support people and businesses.

Look at a Fiscal Policy Stimulus in the order of 10% of our GDP (Yes I know what the implications are but this is not the time to be a mute spectator…Lives and Livelihood are at Risk). This means close to $ 300 billion dollars at least.

Coronavirus Spread Containment 

Surprisingly the numbers remain very low in India at around 2000. We have 2 more weeks of the lockdown to go and the question on everyone’s mind is “Will this be extended?” Another key question is “What happens to the number of Coronavirus cases here? Do we have this in control?

Yes, we have taken the lockdown route but one of the fundamental things missing is not testing enough people. Some of the doctors that I spoke to said that the number of people being tested was shockingly low. If we don’t test enough, our numbers will be low but that doesn’t mean the number of infected people is low. This poses an additional layer of risk for us.

Some of the unknowns are:

  1. How contained will the virus spread be in the next 2-3 months?
  2. When will things begin to reopen?

In short, how soon will things get better?

No one knows the answer to this one, but the Spanish Flu of 1918 lasted for almost 9 months and that was a world with less travel and less global trade (and movement of goods). Though medical science has made tremendous advances since then, the fact remains that we still have no cure for the virus (and the speed at which it is traveling across the world is posing to be a challenge for the global health infrastructure – hospitals don’t have enough ventilators or beds).

China was able to contain this in less than 3 months and everyone is trying to take a leaf out of China’s playbook on the lock down movement.

China recently said that it’s official manufacturing PMI for March came in at 52.5, indicating an expansion defying expectation of a contraction…

Johnson & Johnson (J&J) announced a vaccine candidate for COVID-19 and expects to start human clinical trials by September 2020. J&J will then try to churn out over 1 Billion Doses of the vaccine by the end of 2021. The first batches could be widely available for emergency use by early next year.

While these are some positives, a lot has to happen, and April and May will be crucial months for most countries.

Expect April to be an extremely volatile month in terms of news flows and stock market reactions. I won’t be surprised if we retest the lows and even go beyond what we have touched earlier in March.

What should you be doing?

  1. Don’t watch the headline grabbing news and Watch Comedy movies/series instead. (Read my posts though and share it with your friends and family).
  2. Ensure that you have enough liquidity for the next 3-6 months. Also, there is no reason to stock on Toilet Papers…Well it seems people already have. In the US, Eggs are the next Toilet paper as people are stocking them in their homes (Solid demand for it and apparently some stores had to ration it).
  3. Work harder than ever and work on building real skills.
  4. Reread “Embrace the Bear – Part 2
  5. Don’t look at your portfolio reports at all.
  6. Talk to your financial advisor and if he doesn’t call you or communicate with you, find someone who does.

Remember like everything else “This too shall pass”.