The ever-deepening coronavirus crisis is having a profound impact upon people’s lives the world over, and markets are experiencing their worst falls since the global financial crisis, writes Ramesh Mantri, investment adviser to Ashoka India Equity (AIE) Investment Trust.
Over the past few weeks, Indian equity indices have seen a sharp correction due to a confluence of factors such as the Central Bank taking control of affairs at Yes Bank, and most significantly, the continuing spread of covid-19, globally.
Outlook for India
While the coronavirus situation is evolving, it is heartening to see a large number of countries taking multiple steps to contain its spread.
While the likelihood of an economic slowdown has certainly increased, multiple measures taken by different countries on monetary easing and fiscal stimulus will counteract a part of the economic headwind.
India, due to its limited exposure to global trade and growth driven by domestic consumption and investment led growth, should be less adversely impacted.
In a post-covid-19 environment, Indian manufacturing could be a key beneficiary as the world looks to diversify parts of the supply chain from China.
With the recent steep correction in the Indian market, equity valuations are now below the long-term averages and investors with a long-term horizon stand to be rewarded.
Impact on specific sectors
While no business may remain completely immune depending on the extent of the spread of coronavirus, certain sectors might be relatively more impacted versus others.
The first order of direct impact is expected to be on travel and entertainment related industries; such as airlines, hotels, restaurants and theatre chains.
In general, cyclical sectors might suffer in the near term in case of a broader slowdown in the economy.
Consumer staples, telecom, healthcare and other such non-cyclical, domestic-oriented businesses are expected to be relatively less impacted.
Portfolio positioning
As bottom-up investors, we do not have any strong views on the market in the short-term.
But we believe that, in the current environment, once the dust settles the strong businesses will emerge stronger, while the weaker businesses could suffer disproportionately.
