February 16, 2020
“You only have to do a very few things right in your life so long as you don’t do too many things wrong” – Warren Buffett
In our previous commentary we talked of some green shoots emerging in the economy. And as a precursor to revival of the economy, stock markets had started showing broad-based positive movements across large cap, mid-cap and small cap stocks and indices over the last couple of months.
After the budget, RBI provided a much needed Sanjivani without cutting down the policy rates. They provided the required liquidity especially to focused sectors – home & retail auto loans and MSME sectors – a sector that is largest employment provider in the country and is suffering most post demonetization and credit crisis. With crude oil prices softening and good harvest expected for Rabi crops – inflation should remain stable in near future. Even the finance minister, RBI governor and many global reports are also talking of emerging green shoots and expects better performance in next fiscal for Indian Economy.
Coronavirus – Should you exercise caution – There is something called Black Swan theory. Developed by NN Taleb ‘Black Swan Theory’ explains the role that high profile, hard to predict and rare events play that are beyond the realm of normal expectations in history, science, finance and technology. As its occurrence can never be predicted, same way it’s consequences of such event can be estimated upon its occurrence unless it’s over. Is coronavirus is such black swan event?
In the past also world had suffered from many such epidemics a number of times. But none seemed threatening the world economy like coronavirus. What is so special of this epidemic? Spread of coronavirus across manufacturing hub of China has brought the work in most Chinese industries to a standstill. Many competing countries including India are likely to benefit in short term because of this to fill the gap. But if this epidemic is not controlled in time – this may lead to a serious supply crisis across the world. Remember China contributes to around 16% of world GDP and is mainly an export oriented economy.
We at InvestmentMitra believes that though there are green shoots in the Indian Economy. President Trump’s visit to India may also bring some good news and cheer the stock markets. But unless this epidemic is controlled and the full extent of impact of coronavirus is assessed, one should exercise caution while investing in equity markets.
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