India's GDP would have been shaved off by nearly Rs 6 lakh crore in the lockdown that is into its fourth week. Prime Minister Narendra Modi has announced extension of the lockdown till May 3, which would mean at least 60-70 per cent of the economy being under 'Stop-the-Clock' mode. India produced goods and services, aggregating to Rs 147 lakh crore during 2019-20, as per the estimates of the Ministry of Statistics and Programme Implementation (MOSPI). It works out to about Rs 12 lakh crore a month or Rs 40,000 crore a day.
With the economy being in a state of freeze to the extent of 60-70 per cent, for now, we are producing goods and services worth about Rs 13,000-Rs 15,000 crore a day. Assuming the best case scenario it would take quite a few months, before the Indian economy gets restored to a level where it does not slip into a recession. The multilateral agencies like IMF and financial majors have gone ahead and estimated India's GDP growth at less than 2 per cent for the FY'21. This is also based on the assumption that COVID-19 would totally evaporate from the world in the next few months when life on planet earth would be normal again.
This humongous loss to the economy would accrue largely from earnings of individuals, corporates and governments which live on taxes and provide push to the pace of growth by way of being big spenders. The coronavirus would disable each of these economic levers and turn all the previous assumptions and even the base of GDP on their head. There would be more mathematical modelling around a host of variables - be it health, income, poverty , inequality and what have you. The market lexicons like 'one year forward earnings' would lose meaning. All these so-called disruptions around new technologies, business models would be dwarfed by the biggest disruption, at least in the living memory of all but a few.
In the financial markets, there are analysts and commentators who keep advising you where to invest -- sectors, small cap or large cap, consumption or financials, automobiles or metals. That sounds okay , but the key question is: Invest what? Most of the investors are trapped into mark-to-market losses up to 50 to 80 per cent of their purchase price. So, what are we advising them? Book M2M losses and then re-invest for further erosion, or maybe some recovery or earlier losses. The fact is that most of us have lost money and there has been a tremendous wealth erosion, the mutual funds being no exception despite claiming the professional expertise. All the time and analytical tools at their disposal.
Whom should we blame? After all, who could have guessed it coming? The present generation would have read about pandemics in history books or maybe about some eruptions like Ebola or SARS viruses in some geographies. Thankfully, the financial markets have stopped comparing the present crisis with the 2008 global financial crisis, which was totally man-made, thus enabling a man-made solution as well. But this time around, it is the nature's fury, nobody knows whether it is at its worst or God forbids, there is more to it!.
So, when there is no one to blame and nobody knows as yet the endgame, the least we can do is to play safe and stay at home. In fact, that is what we are doing. Along with staying safe at home, there is this pressing anti-dote required to preserve your wealth in the form of bank deposits even though interest rates are being slashed without any brake. Deposits in banks may lose real value but the bulk of it would remain safe; unless there is any tectonic shock waiting to erupt. But investing in financial products, mainly the stocks, would be highly risky even though they carry a great temptation of being highly rewarding. This is not to suggest that the world is coming to an end; certainly not. But some of the businesses would certainly come to an end while others may emerge victors. We can make some guess works, which again should be erring on the side of caution. With operations being reduced to zero or near zero -aviation, automobile, hotels, restaurants, cinema, shopping plazas and malls, gems and jewellery even their balance sheets may not be showing the true picture since the numbers would have no comparable base.
Best option? Stay safe. Watch Ramayana, Mahabharta on DD National or maybe play a game of Rummy with folks in the family!
With the economy being in a state of freeze to the extent of 60-70 per cent, for now, we are producing goods and services worth about Rs 13,000-Rs 15,000 crore a day. Assuming the best case scenario it would take quite a few months, before the Indian economy gets restored to a level where it does not slip into a recession. The multilateral agencies like IMF and financial majors have gone ahead and estimated India's GDP growth at less than 2 per cent for the FY'21. This is also based on the assumption that COVID-19 would totally evaporate from the world in the next few months when life on planet earth would be normal again.
This humongous loss to the economy would accrue largely from earnings of individuals, corporates and governments which live on taxes and provide push to the pace of growth by way of being big spenders. The coronavirus would disable each of these economic levers and turn all the previous assumptions and even the base of GDP on their head. There would be more mathematical modelling around a host of variables - be it health, income, poverty , inequality and what have you. The market lexicons like 'one year forward earnings' would lose meaning. All these so-called disruptions around new technologies, business models would be dwarfed by the biggest disruption, at least in the living memory of all but a few.
In the financial markets, there are analysts and commentators who keep advising you where to invest -- sectors, small cap or large cap, consumption or financials, automobiles or metals. That sounds okay , but the key question is: Invest what? Most of the investors are trapped into mark-to-market losses up to 50 to 80 per cent of their purchase price. So, what are we advising them? Book M2M losses and then re-invest for further erosion, or maybe some recovery or earlier losses. The fact is that most of us have lost money and there has been a tremendous wealth erosion, the mutual funds being no exception despite claiming the professional expertise. All the time and analytical tools at their disposal.
Whom should we blame? After all, who could have guessed it coming? The present generation would have read about pandemics in history books or maybe about some eruptions like Ebola or SARS viruses in some geographies. Thankfully, the financial markets have stopped comparing the present crisis with the 2008 global financial crisis, which was totally man-made, thus enabling a man-made solution as well. But this time around, it is the nature's fury, nobody knows whether it is at its worst or God forbids, there is more to it!.
So, when there is no one to blame and nobody knows as yet the endgame, the least we can do is to play safe and stay at home. In fact, that is what we are doing. Along with staying safe at home, there is this pressing anti-dote required to preserve your wealth in the form of bank deposits even though interest rates are being slashed without any brake. Deposits in banks may lose real value but the bulk of it would remain safe; unless there is any tectonic shock waiting to erupt. But investing in financial products, mainly the stocks, would be highly risky even though they carry a great temptation of being highly rewarding. This is not to suggest that the world is coming to an end; certainly not. But some of the businesses would certainly come to an end while others may emerge victors. We can make some guess works, which again should be erring on the side of caution. With operations being reduced to zero or near zero -aviation, automobile, hotels, restaurants, cinema, shopping plazas and malls, gems and jewellery even their balance sheets may not be showing the true picture since the numbers would have no comparable base.
Best option? Stay safe. Watch Ramayana, Mahabharta on DD National or maybe play a game of Rummy with folks in the family!
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The author is a Delhi-based senior journalist.
