Prof. Kuber Sharma, Faculty Member, JK Business school, Gurgaon

An alumnus of Columbia Business School, Prof. Kuber is a seasoned professional with a highly analytical approach to business management and analysis, a strong global network, and a deep understanding of several sectors including FMCG, Education, Travel & Tourism, eCommerce, IT/ITES industries. He has leadership experience across Fortune 500 companies and SMEs.

 

“It’s ironical, though, that the global supply chains have been brought to a standstill by something that’s 1/1000th the size of human hair!!!” It’s imperative to look at the impact of Coronavirus on the economy from the prism of the capital markets and the impact of the “real” economy.

FIIs & the Impact of Global Markets: Clearly, we had been in the “Bull” market for a long time. The cyclical bottom was due too for a long time over the last 2-3 years. In Indian equities markets, the signs were ever more conspicuous. Faced by the septuple effect of:

  • lower PMI & higher unemployment
  • after-effects of demonetization & ill-implemented GST
  • lower consumption & thus lower economic activity
  • low-interest rates (Folks had started to divert their savings from FDs to MFs due to such falling interest rates)
  • corporations resorting to share buybacks to enhance the EPSs (despite falling Capex/Sales ratio), lower net profits, idle plant capacities, etc.
  • disparate growth (60% of the rally in SENSEX was fuelled by 10% of the constituents of the index, namely, RIL, HDFC Bank, HDFC Ltd. – something that’s highly unsustainable in the long-term)
  • rising NPA’s (globally it’s one of the highest @ 9% of Gross Assets) and falling of eminent financial institutions like PMS Bank, Yes Bank, IL&FS, etc.

The fire was ubiquitous. Recognition of global pandemic due to Coronavirus by WHO only provided a catalyst to the situation, fuelling a rapid selloff rally. And then the HFs and the algorithmic folks joined the party.

Now with the national-level lockdown, it’s self-evident that there’s going to be severe stress placed on the Indian economy. Travel/Hospitality/Entertainment & Consumer Discretionary will be the hardest hit sectors. Apart from the loss of sales, individuals around the country (especially in the informal sectors) are going to suffer financially as they cannot go to their jobs. According to several experts, even due to temporary recovery, albeit introduced artificially by the Glovia sops and QE, would barely cover loss in earnings suffered in a full year.

Analysis of DXY and WTI Crude: As part of QE & sops, the Central Banks are printing the non-dollar currencies & buying dollars in huge quantities, for it serves as one of the most trusted safe havens besides other safe havens. This rise in dollar demand as indicated by DXY is putting on the pressure on all commodity prices, including Crude Oil constituting 40% of the import bill of GoI.

Moreover, WTI Crude futures had reached ~$20 (3-decade lows)recently due to infight between 2 of the largest oil producers of the world – Saudi Arabia and Russia respectively due to non-agreement on cutting the supply amidst the global supply chain shutdown (instigated by slowdown/lockdown in China). This unsustainable phenomenon may bear good news for the net oil importers such as India in the short-term. Gradually, with depreciating rupee and rising oil prices (due to interference by the US) in the medium term, I expect significant pressure on the fiscal deficit of GoI. The equities markets would just reflect the precise mood on the MAIN STREET over the next couple of quarters or more!!! 

 

Adversity breeds opportunity. Digital enablement (such as platform providers, MOOCs, Self-Learning tools) across education institutions will no doubt emerge as the hotbed of the change, especially in these uncertain times with people at large practising social distancing. As technology improves, and these tools become more interactive, it would inadvertently create a “Digital Divide” amongst the HAVE THE ACCESS and not HAVE THE ACCESS – Pun Intended! Ultimately, these tools would remain only a substitute for the traditional methods of in-person face-to-face interactions.

A common question that now arises is – “So what do we do?” While there is not a simple one word or a sentence answer to your question, what one can certainly do is enrol at good business Schools & unravel the intricacies of the markets (even as standalone courses). Furthermore, an MBA from a good college will provide you with an opportunity to learn from a top-class faculty with a worldwide reputation for intellectual capital and thought leadership in core management areas. A major in Business Analytics and Finance with electives such as Value Investing, Trading the Capital Markets &Alternative Asset Classes will form the critical foundation for your career goals as future equity/financial analysts, investors and traders!

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