The economy today stares at the looming shadow of a major economic recession. The June 2020 quarter expects a major slump, and the outlook for 2021 is quite grim. Compared to the recessions of the past, what stands out today is that we are threatened by a virus. The coronavirus to date, has affected over 200 countries to date.
Even though the economic forecast for the near future is quite gloomy, there is speculation that the economy will get a quick recovery in 2021, this is dependent on the policy responses of countries. Economic research by S&P Global expects global growth at 0.4 per cent in 2020, dragged down by contraction in major regions like the US (-1.3 per cent), Eurozone (-2 per cent) and Japan (-1.2 per cent). It does expect India (3.5 per cent GDP growth) and China (2.9 per cent) to stay afloat in 2020. Revenue is expected to contract and foreign portfolio investors have pulled investments out of all emerging markets due to the growing risk factors facing them.
The growth numbers for India were quite low to begin with, a 7.5% growth rate is estimated which is the lowest in 17 years. The 21 day lockdown has caused major setbacks. As of now, the government faces major expenditure with little to no income. The total cost of the lockdown is estimated to be at least at ₹8.03-lakh crore, which is about 4 per cent of the GDP.
According to SBI Ecowrap, income loss due to the lockdown will be around ₹1.77-lakh crore and loss in capital income of ₹1.69-lakh crore. Job losses are expected in agriculture, trade, transport and hotels. Also, the sharp decline has brought down investor wealth equivalent to ₹44,25,000 crore.
For an investor at times like these, its best to play safe and keep investments in and around strong companies. The sectors most affected are travel and tourism, automobiles, banking and construction. The sectors not as affected are pharma companies like Ajanta Pharma and Dr Reddy’s Lab , non-discretionary goods manufacturers like Dabur, Unilever etc and the IT sector.
