With the markets overheated, the COVID-19 pandemic provided the trigger for a global correction across asset classes. While equities crumbled, flight to safety assets like gold too saw sharp falls leaving investors scurrying for cover in cash and treasuries.
As the coronavirus marched on through the EU and onwards to the United States, governments scrambled to save companies and the economy with one country after other implementing virtual curfews.
As expected, this had the desired effect of temporarily preventing a general slide into a severe recession. While what the governments can do is known, what is less than certain in the near and intermediate future for India and what one can expect.
Post the lockdown (which is likely to continue in some shape or form), there are broadly three scenarios: there is no surge of the kind seen in Italy, Spain, and the US.
This scenario has a low probability for many reasons, the least of which is our population density leading to pockets within cities and rural areas where social distancing is nearly impossible.
If one were to read into the government’s preparedness (Mobile wards from Indian Railways with 5000 coaches), the ventilator production rapidly ramping up, and strict lockdown enforcement may point to some probability of a surge.
Which brings us to question 2: when. This is a straight unknown but if there were to be a rising infection rate, then it could happen now or, as was the case during the H1N1 swine flu pandemic, it happens post-October as the winter begins to set in.
Scenario 1, a rise in infections would result in some amount of immunity in the general population and, come the end of the calendar year we may see the economy firing on all cylinders as the world has or is very close to developing a vaccine.
The near-term impact may be severe, but it is likely it’s been priced in and the RBI has already declared its course of action with ample headroom for further rate cuts (and other policy measures).
The second scenario also helps as it further ‘flattens the curve’. Information is flowing to administrators and managers, continuously – with additional time available, not only is the country better prepared, but it also knows more about the disease,
transmission, controls, contact tracing, data on effective drugs, etc. and the response, therefore, is more effective in curbing the spread.
In either of these cases, by early next year, the economy may be humming along as usual. However, as investors, keywords like recovery, high growth, inflows may be some time coming as the consensus is for a u-shaped recovery.
Some Industries have seen severe disruption which will have a knock-on effect on general consumption. On the other hand, with reduced competition, there will be opportunities for newer and cash-rich firms to regroup and restart economic activity.
One thing is certain, not just the economy, the way we interact with others, business or otherwise, will change significantly and that is likely to spell trouble for sectors like commercial real estate.
The beneficiaries of this ‘work distancing’ maybe the likes of Zoom and House party or even good old skype.