2ND WAVE OF COVID-FEARFUL IMAGE OF THE ECONOMY

Congratulations. India has become No 1 position holder for COVID 19. The 2nd wave has started happening and the world economy cannot ignore another round of hurdles.  Few states of India failed so badly that new level of benchmarks has been created of failure.  Well now we have 2nd wave. Now lack of precaution has brought 2nd wave or its the new transmission is yet to be clarified.  The biggest gainer of the 2nd wave will be Gold and Pharma followed with health care products and COVID related materials and equipment. Investors will book profit under the disguise of volatility and will wait for another opportunity of making short term money as made from March 2020 fall down to till now. Many industries will now disappear and business models will vanish now. Unemployment will now be like flu which will spread as the re-opening clarity come under a question mark.

Stock markets will be under doldrums and the recent surplus liquidity-driven growth and zero Capex by corporates will be facing a high level of volatility. Sectors which were just about to pick up from growth or have just started taking baby steps post-COVID -19 will be facing another bottleneck of a slowdown. 2nd wave will kill the hopes of restarting and jobs which were under hold for not getting chopped will now be butchered.  Job loss and unemployment will spook as the uncertainty of getting back to Pre -COVID times will now be more uncertain.

The equity market will correct from the current high levels and large caps will be the most favoured. Mutual Funds and all other modes will not be attractive as everyone will become fund manager due to falling stocks followed with a topping of cheap prices. Gold will be back in the game and will rise to a max level of $2500/once based on the current scenario. Fixed income markets will bleed. Corporates papers and fundraising dreams will be pushed back if 2nd wave takes a stronghold. G-sec will be riding a wild horse with a wild guess of swings. Weak companies and NBFC will face more music and Banks will be under pressure to manage the rising NPA and restricting burdens.  G-secs will be under pressure creating a new history.  Adequacy of liquidity to cover upcoming debt obligations will be the key focus area for the NBFC sector. Equity raising will now be a distant dream if the 2nd wave comes up in real terms.

Governments with strong liquidity like the US will print more money which will help Trump to win for the next 4 years. Poor and weaker countries will bleed and debt level will soar to a new historic high.  A country like India will have now limited ammunition. Gov’t and individuals share most of the GDP loss. Pandemic still affects Rs14 tn of private consumption.

 The story of another round of moratorium will be only left out the option for Indian govt. The budgets and borrowing are stretched and 11% to 14% Fiscal deficit is already accounted for. If the 2nd wave happens then this will shoot up to an unexpected number beyond calculation.2nd wave slows down the following prospects of Transport which is the worst affected in terms of size: school buses (12% of all transport), air and train travel (15%), and inter-city movements are still restricted. Nearly half of hotels and restaurants and a fifth of clothing are affected: ethnic premium clothing (marriages, functions), and western wear (primarily for offices). Voluntary hospital procedures, tuitions, intoxicants (out-of-home), and some personal services are also far from normal.

 Suicides will grow and Psychology doctors will be in high demand. Social impact and impact on families under the middle class and poverty levels will be at a critical stage. Gold pledges will increase and asset recovery by banks will increase. Currently, 70 lac people are unemployed and this number will shoot if the 2nd wave comes up.

Vaccination story and getting vaccinated seems to be another story which is of less reliable. In short, more pains have waited. Coming to investments, well capital market players will face more music. Regulators are already playing bugle and professionals are dancing just like the end of the world. We failed to understand that why regulations are made stringent in times of crisis and not when the market is growing in good times. Why the regulators kill an industry which feeds millions?