A Virus In The Drivers Seat!
Of late, a lot of activity in the market has been based on expectations from the Union Budget and how the government is trying to bring India’s economic growth back on track. However, there has been a bigger and stealthier event building up which can make the market swing aggressively in either direction. Yes, I am referring to the new Coronavirus that is sending shivers across all countries now. The budget announcement has now become an insignificant event as compared to the impact that this new virus can do to the world economy. While the budget is being studied and its impact on various sectors, etc. is being determined, the reading on the wall as far as the sectors affected by Coronavirus are concerned is clear.
Stocks related to travel, tourism, leisure as well as energy and retail are likely to be under strain while stocks that are from healthcare, pharmaceuticals, bio-technology, medical equipment, vaccines, gloves, etc. are likely to benefit from the crisis. Let us revisit the impact that the SARS (Severe Acute Respiratory Syndrome) outbreak, a similar crisis, had on the world in 2003. It primarily contributed to a slump in the global markets in early 2003; however, the stocks recovered once the outbreak was contained. The S & P 500 had dropped near 10% from the start of the year until March but finished up more than 26% for the whole year.
Also, in China, within a few weeks in 2003, the Chinese equity markets had made good a lot of their losses. As such, how should an investor read this scenario? Well, it can be read as a crisis or an opportunity. One thing is clear: the degree of severity of this virus is going to move the market substantially. However, no one clearly knows what this degree going to be. Hence, it is best to look at this scenario from the risk-taking capability of an investor. For investors who want to keep it safe and go with the flow it will make sense to increase weight on the healthcare and pharmaceutical stocks while reducing weightage on travel, airlines, restaurants, energy, and retail stocks.
Risk-taking investors may want to accumulate beaten down stocks with the only hope that the virus will get contained shortly and this crisis would end in about 3-4 months as it had happened previously. We will continue to closely monitor this development and keep our readers updated on this element affecting the markets. Meanwhile our cover story talks about better ways of investing in small-caps and mid-caps in order to create wealth in the long term. We hope this article will help you gain practical insights into small-cap and mid-cap investing. Our special story focuses on fertiliser stocks and the impact government initiatives have had on the same. The story highlights the sectoral challenges and provides an outlook on the sector. Have a look; you may find something interesting in this space!
This issue is our special ‘Best Business School in India’ issue. We are fortunate to bring to you different perspectives from leading academicians in India and abroad on management education and the latest trends brewing in the management education space. All in all, the duration of Coronavirus matters a lot. If this crisis is going to drag for a couple of weeks, then it’s no big deal, but if it extends into months then this will definitely have an impact on the GDP. History has shown that mankind has always overcome such outbreaks. Hence, let us keep our optimism high and smartly work on our investment portfolios!
RAJESH V PADODE
Managing Director & Editor