CRISIL has substantially downgraded the GDP for the fiscal year 2020-21 from 5.7% to 5.2% in the back of the slowdown induced by the Coronavirus pandemic. CRISIL feels that the virus could impact Indian GDP growth in two ways. Firstly, companies are likely to feel the heat of the slowdown and that is likely to impact their output and the cost of funding. Secondly, the bigger impact of the shutdowns will be on the consumption demand and that is likely to have a long term impact as incomes are also likely to be negatively impacted. The virus could actually push current year GDP growth to well below 5%.
Foreign portfolio investors have pulled out a massive $4.9 billion in equities in the month of March, making it the sharpest sell-off in such a short span of time. By the end of March the monthly FII sales are expected to surpass the peak 2008 sell-off levels. There are already more than 2 lakh confirmed cases and the afflicted list in India has crossed 200. The pandemic has resulted in global risk-off investing and that has led to heavy selling across emerging markets. Most of Asia has seen outflows that are much steeper with Taiwan and South Korea leading the way in terms of FPI selling.
Dow Jones Index saw a bounce of around 200 points on Thursday as the series of stimulus measures announced by the US government managed to give some relief to the stock market indices. However, most of Asia continued to be under pressure. This pressure stems from the dollar strength as the dollar index has gone above 100. There has been a surge of outflows from most emerging markets into the safe havens of the US, where the US dollar is expected to be the only currency to hold value. Apart from FPI outflows, these Asian markets have also seen aggressive currency weakening.
As Yes Bank resumed normal operations from Thursday, there was no run on deposits as some were expecting. In fact, the RBI had provided for Rs.60,000 crore of emergency funding for any exigency but that was not required. Prashant Kumar, CEO of revamped Yes Bank, had already assured depositors that SBI would not sell its stake in the bank till the completion of 3 years. That had substantially reassured the markets. In addition, the bank also laid out its plans for capital raising and will be immediately raising Rs.20,000 crore through certificates of deposits. It was a smooth first day for Yes Bank.
Meanwhile, India’s response to the Coronavirus is getting tougher as the number of people affected crossed the 200 mark. Globally, Italy crossed China in terms of the number of deaths, making Europe the epicentre of the pandemic. Indian government has already barred travellers from many nations but now will entirely ban international flights between 22nd March and 29th March. In addition, the Sunday 22 March will also be observed as internal curfew day and streets will be voluntarily kept deserted. Over 2500 flights will be cancelled during these seven days and that is likely to lead to huge losses to these aviation companies. Only relief flights to ferry citizens to and from India will be allowed on a case-by-case basis. This shutdown is likely to lead to huge disruption on international travel and business.
The Supreme Court has directed the speaker of the Madhya Pradesh assembly to hold the trust vote by 5PM on Friday, 20th March. It maybe recollected that the Congress government in Madhya Pradesh had come under a cloud in the state after the abrupt resignation of Scindia; who went on to join the BJP. This led to 22 of his loyalists resigning from the house leading to a crisis in the house. Kamal Nath had stalled the trust vote under the pretext that his MLAs had been kidnapped and kept in Bengaluru. It now remains to be seen whether the speaker of the house gives his assent to the trust vote.
