Coronavirus And A Sluggish Economy

Coronavirus and a sluggish economy have dented investor confidence. Experts warn of tough days ahead and advise a conservative approach to investing.

- Salil Panchal

Investors know they need to brace themselves for bad times when a central bank announces a large and unscheduled cut in interest rates to protect economic activity. In March, the US Federal Reserve announced half a percentage point cut in rates—its first and sharpest since the 2008 slowdown—to support their economy from the novel coronavirus (Covid-19).

The concern is not unfounded as Americans are China’s largest consumers. Other countries, too, are worried because China accounts for 15.1 percent share of the world’s GDP. When the last epidemic, Severe Acute Respiratory Syndrome (Sars) hit the world in 2003, this figure stood at just 4 percent.

Global equities—particularly the Dow Jones index’s record fall of 1,190 points on February 28—echoed the nervousness caused by the outbreak. There is a clear financial panic for the first time since the global meltdown of 2008. It is evident that companies across the globe, particularly those that depend on sourcing raw material or technology from China, will face a tough business cycle in the coming months.

And India is not an exception. About 18 percent of India’s merchandise imports (worth $85 billion) come from China, with everything from consumer durables, electronics and select auto components to sea food, solar panels and some pharmaceutical bulk drugs highly dependent on imports from China. India’s benchmark 30-share Sensex index has fallen 9.68 percent and the Nifty 50 10.3 percent year-to-date. Volatility, through the India VIX index, has also risen in this period, led by the weakness across global equities (see chart).

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