Rashesh Shah, founder Chairman and Chief Executive Officer, Edelweiss Group, has seen many ups and downs in the stock market during his career spanning nearly 30 years. He is of the view that the current crisis is reminiscent of instances in the past, and the fear and panic will subside soon to make way for a new stock market rally. There could be a couple of bad quarters for the global economy but no permanent shutdown of business and trade. Low current account deficit, high forex reserves and bounty from lower oil prices will emerge as India’s biggest strengths. Excerpts from an interview:

Do you think the stock market reaction and panic to coronavirus are overdone?

I have seen such panic and fear in the financial markets 10-12 times in my career. There was the Asian currency crisis, US war in the Middle East, 9/11 terror attacks, dot com bubble, 2004 market crash, P-note market crash, 2008 financial crisis and the spread of diseases in the past. In most cases, when there was acute global panic, stock markets feared a complete shutdown of the world economy and business activities. But after every event, the markets bounced back even more strongly in a few quarters. The reason is that such events impact growth for only two to three quarters. The current phase in the stock market is reminiscent of the past. Panic on the coronavirus is overdone, as statics suggest that the number of new cases is falling. World-over, governments have started acting on various fronts. Two or three quarters of growth will be affected, but I do not see businesses and trade shutting down for years. Global central banks are much more powerful than the perception people carry around, and these institutions will not let all trade come to a halt so easily.

After a near-30-per-cent crash, what is your view on India’s market and economy?

India and its markets have gone through extreme stress tests in the past three years. We have seen the peak of the banking crisis and Reserve Bank of India (RBI) has handled the situation appropriately. India’s forex reserves are very strong now. With the crash in global crude oil prices, India’s position becomes even stronger. The current account deficit (CAD) has come down to comfortable levels. There is room for RBI to cut interest rates and it will most likely do a 50-basis-point cut in April itself. Indian and emerging market currencies have adjusted as much as they could against the dollar. India does not have any currency crisis. In fact, for India the situation has turned far more positive than anticipated in terms of lower CAD and higher forex reserves. Concern now could only be globally and much less in India. But globally too, central banks are embarking on massive quantitative easing, which is a counter balance to the current crisis. The measures being adopted and further anticipated moves will limit the current situation from becoming a full-blown crisis. In the 2008 financial crisis, we saw the US Fed open its tap and asset prices recover. This time too, thanks to the pace of action being taken by central banks, asset prices could recover faster than anticipated. Stimulus packages will ensure that.

What is your assessment of the impact on corporate earnings?

The current quarter, which is the fourth quarter, will be bad. Even the first quarter of next financial year starting April may not be too good. Analysts will come out with their lower forecasts soon. But all that is now factored in very well. The markets are at a five-to-six-year low. The broader markets are even worse in terms of stock prices. How much worse can it get? There is a real fear of recession. All these happened in 2008 too. Equity bear markets happen frequently all over the world. We may see some two quarters of recession. But for India, oil prices will be a big factor, as it will result in $30-$35 billion worth of savings. The government’s balance sheet will gain tremendous strength. All these will be visible with the passage of time, as the situation in terms of sentiment becomes normal. RBI and the government have moved very decisively to handle the YES Bank crisis and averted a collapse of the banking system.

After such a shock, how long do you think it will take for investors to return to the markets?

There is a little bit of risk-aversion globally. Such risk-aversion does not go away overnight. After June, when global liquidity improves further, we should start seeing money flowing in to markets too. Credit growth too will return. In India, the current credit growth is around 6 per cent. We require a credit growth of 12-14 per cent for a nominal GDP growth of 7 per cent. RBI and the government are mindful of that requirement.

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