Medical Solution To Covid-19 Needed For Markets To Be Calm, Says Nilesh Shah

During this unprecedented crisis triggered by the new coronavirus pandemic, Kotak Mahindra Mutual Fund’s Nilesh Shah says markets won’t get confidence or comfort unless there is a medical solution.

While 2008 was a financial crisis, 2020 is a “financial and medical crisis”, Shah, managing director at the Kotak Mahindra Asset Management Company, told BloombergQuint. “We need a medical solution before a financial solution can emerge and markets can recover,” he said, hoping for a cure against Covid-19 to emerge soon.

The virus has infected in excess of 3.25 lakh people worldwide and killed more than 14,500 till Monday. The number of cases has more than doubled in four days to 415 in India. That has prompted lockdowns in at least 75 districts, covering big metros, shutting down businesses temporarily in Asia’s third-largest economy. India’s stock market continued its downward spiral, with the trade halting for the second time in less than a month as the benchmark indices tumbled 10 percent in early trade on Monday. The Nifty 50 and Sensex have tumbled about 37 percent in the past month.

“The biggest worry is life and livelihood,” Shah said. The markets are discounting the negative aspect as there is no medical solution available and there’s no point in guessing where the bottom will be, he said.

Reaching 2008 Lows

At the October 2008 lows, India’s market capitalisation-to-GDP ratio was 43 percent, Shah said, adding that the ratio stood at 49 percent at Thursday’s closing prices. “With today’s correction, we are reaching to 2008’s low. But the question is whether this will be sustained or there will be a further correction,” he said.

Time To Shut Markets?

No major market has been shut except for the Philippines which had to face the brunt of big correction, Shah said. He said it was up to the regulator to decide as it would be in a better position to weigh what’s appropriate.

What Lies Ahead

Shah expects the annualised impact of the virus-driven slowdown on the GDP to be around 2.5-3 percent, without taking into account the corrective measures by government and the central bank.

The markets are expecting more from the Reserve Bank of India, he said. Though central bank talked about the interest rate cut being on the table in the monetary policy committee meeting but “markets are expecting some move before the MPC”. The urgency to take action has increased now with the auto and cement companies shutting down their plants, he said.

“My presumption is the central government will have to focus on multiple things like the banking sector NPAs, consumption continuity,” he said.

The RBI, in fact, on Monday announced a liquidity support of Rs 1 lakh crore to banks via repo operations as it as it tries to prevent a freeze in the credit markets. The finance minister, too, is expected to announce measures.

The shutdowns will cause a slowdown but, at the same time, benefits will flow in as the central bank and the government respond to current situation by way of lower interest rates, higher liquidity and fiscal stimulus, Shah said. There will also benefits from lower oil prices and lower trade deficit.

But should investors consider buying amid volatility? Shah advises buying in bits and pieces. At every level of correction, you will have to improve equity risk and allocation, he said, adding that keep looking at the situation and as it evolves take a call.

Watch the full interview here: