Coronavirus Impact: Max Life’s Mihir Vora Warns On Second-, Third-Order Effects Of India Lockdown

As India is put under full lockdown for 21 days amid the coronavirus pandemic, Max Life Insurance Company Ltd.’s Mihir Vora said it was imperative for the government to come out with plans to save the businesses and individuals as there would be a second-order effect in terms of job losses, bankruptcies and defaults.

“Lockdown is fine but it has to be mitigated by certain fiscal measures and hope these measures come in sooner than later,” the chief investment officer at the life insurer told BloombergQuint in an interview. “While the second and third order effects cannot be quantified at this point, there will be an immediate loss of GDP as we are not doing any activity.”

The Covid-19 outbreak—that has so far killed nine people in India and infected more than 500—forced the government to seal the nation’s borders to contain the spread and shut businesses temporarily, barring essential services. India’s equity market continues to witness a downward spiral, tracking their global peers, hitting the lower circuit twice in a month. Finance Minister Nirmala Sitharaman, in a press meet on Tuesday, said the government was in the process of announcing a relief package for the economy and the announcement would be made soon.

“Our base case is that the economy will go through a V-shaped recovery in September quarter or maybe later because there is no choice for government and central bank but to pull out all the stops, whether it’s fiscal or monetary, and we are little bit behind the curve,” Vora said. “And at some point the market and the economy will push the authorities to do so.” Given the rate at which markets are falling, there will be a bottoming out much before that.

On Markets

It’s a shallow market, Vora said. “Prices now are based on very low volumes created by liquidation of margin trades or employee stock option plans funding, not sold by rational or analytical measures but sold because of financial or cash needs,” he said. “There’s going to be recession globally, June quarter numbers are going to be terrible and we will have to bear the pain for sometime but hopefully the downside will be limited.”

Also Read: Life Insurers Keep Faith in India Stocks Amid Mayhem

On Financial Sector

Vora highlighted four factors for the correction in the banking stocks. They are:

For ETFs and hedge funds, the higher the volatility the lower is the risk budget and that’s why they are liquidating stocks. The algo trading angle is also correct.

Private sector financial space accounts for 40 percent weight in the Nifty and when there is liquidation towards India, 40 percent sales comes in this segment. So, there is a supply issue here.

To fund the ESOP premiums issued by companies, employees had taken leveraged loans with shares as collateral. And with the value going down and no cash, the financier will liquidate the stock which has happened in case of mid caps.

There will not only be stress in corporate sector but also on the retail space due to the lack of income for an extended period of time. So, retail-oriented non-bank lenders and banks are beginning to price in these concerns.

The Nifty Bank Index tumbled 16.73 percent—its biggest single-day fall—on Tuesday. The gauge was down 1.2 percent in early trade on Wednesday but pared its losses to trade 7 percent higher.

Also Read: Why HUL Is The Only Gainer Among FMCG Peers So Far This Year

Still, Vora said when the economy turns around the same set of financials would drive the market up. “It’s just a question of when and not if,” he said. “We should not read much into the prices as they are just a temporary demand and supply reaction for these bluechip stocks.”

Also Read: It Was A Dividend Double Dhamaka By India Inc. Before The Coronavirus

Vora, however, advised that it’s not best of ideas to wait for the day when Nifty bottoms out but keep an eye on individual stocks.