Coronavirus pandemic | Global economy likely to take a bigger hit, but good time to pick quality stocks

Trade Nivesh Coronavirus pandemic | Global economy likely to take a bigger hit, but good time to pick quality stocks: Experts




The spike in infections and deaths from the novel coronavirus outside China indicates that damage to the global economy could be more severe than anticipated and the recovery in equity markets will not be sharp, say experts.

India, which has confirmed 73 cases, has suspended all but a few categories of visas till April 15 to check the spread of the virus.

The World Health Organization (WHO) on March 11 declared that the outbreak a global pandemic. It saw US President Donald Trump suspend travel through Europe to limit the virus spread.

"I think with every passing 24 hours, we are figuring out that the economic damage around the world is going to be much more severe than people believed. Let's start with the caveat that the economics here is secondary, this is the gravest public health emergency we've seen in modern times. It is safe to say that the economic damage around the world is going to be grave," Sajjid Chinoy, Chief India Economist at JPMorgan, told CNBC-TV18.

"Q1CY20, on an annualised basis, global growth would be deeply negative - more like -1 percent, contracting by a percent and those numbers are being revised every 24 hours," he said, adding India GDP would be impacted by at least 70-80 bps.

Globally, infected cases have crossed 1.18 lakh and more than 4,300 people have died. Italy is the worst affected country after China, with 12,000 cases with 827 deaths.

South Korea and Iran have reported more than 7,000 cases each, while in China, from where the outbreak started, infections and deaths have declined sharply in the last few days.

The number of confirmed cases in China stand at 80,793, of which 62,793 patients have been cured, and 3,169 people have died.

Experts say markets will remain nervous till the virus recedes, but considering the correction and favourable macros (including fall in oil prices) with likely recovery especially after several measures taken by the government, it is the right time to accumulate quality stocks.

"It's rare that you get economic recovery and a stock market correction at the same time. So, if you believe that over the next couple of years, the Indian economy will recover slowly, then this is as good a time to enter markets," Saurabh Mukherjea of Marcellus Investment Managers told CNBC-TV18.

"I don't think this is anywhere comparable to 2008. 2008 was a decimation of the Western world's financial system. I think as we get another month into this whole coronavirus epidemic or pandemic, as summer approaches people will be able to do their calculations and what exactly is the economic risk here."

Experts favour gradual buying, pointing to the situation in China that is under control now-- the same can be expected in other countries over the next couple of months.

"People who can deal with high levels of uncertainty can start slowly and steadily investing. In my opinion, no need to rush in, it's not as if today is the only day that you will get to buy stocks. Therefore, people should think through as to what level of uncertainty they can deal with and then slowly and steadily decide, how they want to deploy their cash," Hiren Ved of Alchemy Capital Management said.

"I think it is safe to say that you buy strong businesses, high-quality businesses because typically whenever the market bounces back, high-quality stocks will bounce back the first."

Making money in equity markets was not about staring at macros and flows, said Saurabh Mukherjea. "It's about focussing on company fundamentals and on economic fundamentals and consistently buying high-quality names," he said.

Marcellus has been buying steadily through this fall, said Mukherjea, as data from China suggested that the situation was broadly under control. "Even if you see the Chinese government doctoring the data, the Chinese stock market stability itself suggests a measure of control of the situation," he said.

All other markets except China have tanked in the last few days, as the virus spreads to other countries.

The Indian market has fallen around 20 percent from the record high seen in January. Dow Jones has crashed 19 percent since February 20. China, however, declined only 5.5 percent during the same period.

With oil prices falling, experts favour deploying more cash gradually in equities.

"At least 20-25 percent money should be deployed from here, as the situation will get under control in the next two-three months. The recovery may not be sharp, but will take place once we start getting good news from China," said Vikas Khemani of Carnelian Capital Advisors.

"The India story is all about consumption, which is a solid one. On the sectoral front, the IT sector has international leverages, hence there might be some pain in the next couple of quarters, but then rupee may support it. For better portfolio from defensive play, pharma, which was a sector in doldrums, is the one where you get it at right valuations considering the demand."

Ashwini Agarwal of Ashmore Investment Management said they would buy into domestic demand-driven companies.

"Many private sectors banks are well capitalised and could be looked into post recent correction... We believe this is a great buying opportunity from a longer-term horizon," he added.

All sectoral indices were traded at 52-week lows on March 12. Sectors such as Auto, Banks, Energy, Infra, IT, Metal and Realty have fallen between 20-30 percent since February 19.

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