There is bloodbath in bourses all over the world. I am failing to keep with the dilution of market capital, which would have by now exceeded US$ 10 trillion. The double whammy of COVID-19 and depressed oil demand has sunk the stocks while pushing the gold prices to a seven-year high.
India had an added worry in the form of Axis bank scam, one more in the long list of lax control and collusion between lawmakers, bankers and shady businesspeople. Today the Sensex sunk by close to 1941 points to 35634, wiping away BSE market capitalisation by nearly 5%. The absurd heights of 40K plus of the Sensex, while GDP had fallen below 5% was not sustainable and was an engineered one by racketeers. It had to explode and was looking for a cue, which came initially in the form of the virus and got further buoyed by Yes bank scam.
A panicked OPEC broke ranks, Saudi Arabia retaining their earlier pumping levels and causing a price war, resulting in Crude prices falling steep and Brent trading around US$ 32 at the time of this writing. The lower costs of the crude in the absence of demand may not prop up the crude prices anytime soon. For India, reeling under a messy statistics, the faltering economy will get a crutch to lean on, cushioning the fiscal deficits.
The contagion may have begun, and like in 2008 governments will have to step in to save banks, the contact lever between the governments and people. Cleverer nation, in the wake of catastrophes prompted by COVID-19, would redefine their trade priorities and trade systems moving away from “China syndrome.’ A few non-labour-intensive Industries will return to Europe and the USA, while labour intensive will struggle to find alternatives to China.
At this moment, barring the COVID-19, there is no threat to China as the monopolistic manufacturing hub of the world, which it will continue to rule. India’s Chief Economic Advisor, K. Subramaniam, though is optimistic in India’s entry as an alternative to China. He has to tout the lines of the government and his bosses.
While I agree over the few opportunities that may emerge due to China’s virus problem, India’s hazy legal system, complicated exit policy, lack of infrastructure, industry hostile labour policies, wage policy devoid of productivity norms, a plethora of rules and regulations will impede any hurried arrival of FDIs. Political interference, unless changed, will never put India on a world map as a preferred manufacturing hub and substitute for China. Besides, the CAA protests or the communal disharmony will be a deterrent and not dismissed by a discerning overseas investor.
I would not bet on the gold investments now, as there is panic buying due to loss of faith in stocks. My suggestion would be, look for companies with good fundamentals, which have a chance to rebound in about a year. It is better to stay away from the aviation and hospitality sectors. Auto stocks also are unlikely to grow, as job losses will flood financiers with vast inventories of impounded vehicles, which already is high. I do not foresee any immediate change in the struggling fortunes of leather, gem & jewellery sectors as well. Textiles segment will survive, and so will food and pharma. Services will suffer for at least two quarters.
I hear yagnas are already being planned to stabilise our bourses and economy, but am ignorant to comment on this!
Sampath Kumar
Intrépide Voix
