SHOULD WE WORRY ABOUT THE VIRUS?

about 5 months ago
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All around the world, coronavirus is the biggest news. If you have travelled by air recently, especially international, there is a sense of trepidation in the air and all around, you see eyes peering at you suspiciously from behind masks. A faceless mass of people is all that we see.

And then you land in India, there is no sense of worry or panic; its life as usual. The feeling is that the virus is far away in China and hence no need to worry as such. The stock market is behaving as though there is no tomorrow and it has to make new highs every single day. So why is it that the market is not worried while the rest of the world is?

The Indian market is simply basing its assumption on the past; when the SARS had struck, the disease was contained and China bounced back super fast. The market feels that this is something which is China-centric and it will be contained; there with no impact here as such.

But somewhere, is the market being too myopic and not looking at the short term economic impart, especially when we are already reeling under a slowdown? China is India’s third largest trade partner and China’s share in the world trade has risen from the under 4% during SARS to 16% now and that’s a huge impact if China’s slowdown prolongs.

Till now, the impact was muted as factories, seasonally, cut or stop production in till first week of Feb to celebrate their lunar new year. But today, China announced that the new year leave is now further being extended till 17th Feb and there are murmurs that it could get extended further.

Electronic companies in India are already running low on raw material inventory and so is the pharmaceutical, auto parts, chemical units. So if imports do not come soon, these sectors will have no option but to slow down their production too.

China has about $60 billion worth trade with India, which obviously cannot be replaced over the next few months. Manufacturers will have no option but to wait for few more months instead of start producing in an uncertain policy environment.

The die-hard optimist Indian feels that once summer comes calling, all the virus will disappear as it did during SARS.

For now, one does not know the long term impact but in the short term, if production remains shut in China, the entire global supply chain will be affected. A pandemic will put economic recovery on the back foot.  We do have the advantage of the lower crude price but if discretionary spending itself takes a hit, the lower prices will not help mitigate that loss.

We can only hope and pray that the optimism which India has does turn out to be true ….a further slowdown at this juncture is not what we need.

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