Major Indian stock market indices fell by 8-9% today in the biggest single-day fall since the global financial crisis of 2008.
The Sensex fell 2,919 points (8.2%), while the Nifty 50 fell 868 points (8.3%) — by far the biggest single-day points correction in the history of these two indices.
GOOD TIME TO INVEST?
The rapid and somewhat unexpected decline has caught many investors unawares, and have led many to ask whether now is a right time to invest or not.
The answer to the question, unfortunately, is not a simple yes or no, but in fact depends on how one expects COVID 19 infection to unfold around the world over the next few days.
Also, in the very short term, the pain is not yet over. The Dow Jones Industrial Average, the most prominent US stock market index, fell 1,465 points (5.9%) yesterday.
However, with the US government imposing more travel restrictions, particularly to Europe, after markets closed, the DJIA Futures fell by another 1,000 points. In other words, it’s quite likely that the US markets may have another day of pain ahead of them when they open in a couple of hours, which could in turn trip Indian stocks again tomorrow.
Coming back to the question of whether it is a good time to invest or not — the answer is: It depends on how long it takes to bring COVID 19 under control.
In case of China, for example, the country took about two months to get a grip on the spread of the disease, with daily ‘new cases’ starting to fall with every passing day.
However, the situation in Europe and US is far from similar, with the number of new infections daily being on the upswing, instead of coming down.
Hundreds of new cases are being reported in the US every day, while thousands of new cases are being reported in Western Europe — with Italy, France, Spain, Germany and the UK each contributing hundreds of new cases each per day.
Total cases in the US so far has crossed 1,300, with a whopping 307 new cases reported on Wednesday, March 11.
In Spain, the total number of cases jumped to 2,039, with 583 new cases reported on Wednesday.
Germany reported 401 new cases on Wednesday, taking its total to 1,938, while Italy added around 2,300 new cases on Wednesday, taking the total to 10,590.
More worryingly, the number of new infections continues to rise in each of these countries, and none of them have passed the ‘peak’ as far as new infections are concerned.
If the US and Europe can pass the ‘peak’ in the next 10-15 days, and start bringing down the number of new cases reported every day, the global economy is likely to bounce back without sustaining terrible damage.
However, if the number of new cases in the US and Europe continues to remain robust through the first half of April, the impact that the resulting shutdown of offices, public transport and other containment measures can have will be quite disruptive to the global economy.
If the number of new cases of COVID 19 starts coming down only in the second half of April or later, the recovery in the economy, as well as the stock markets, will take more time, and chances of a global recession become very strong. Needless to stay, stock markets will remain under the weather in such a situation.
On the other hand, if new cases start coming down in Western Europe and the US within the next two weeks, stock markets will bounce back and recoup much of what they have lost in the last few days.
So, in short, whether to invest in stocks now or not depends on whether one expects the spread of COVID 19 to be arrested in the next few days, or whether one expects that to take 1 month or longer.