Ratings agencies say coronavirus-fuelled recession looms over already ailing Indian economy

Ratings agencies say coronavirus-fuelled recession looms over already ailing Indian economy

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Major international ratings agencies have slashed India’s GDP (Gross Domestic Product) growth rate for 2020 in less than a week. The agencies have attributed the cut in India’s economic growth forecast to the spread of the novel coronavirus or COVID-19.

The latest to join a chorus of global agencies that have made similar observations in recent days for the next financial year 2020-21 is Fitch that downgraded India’s growth forecast from 5.6% to 5.1% and  the Bank of America Securities India that slashed India’s GDP growth estimates  by a sharp 90 bps to 3.1 per cent for the June quarter of FY21 and by 40 bps to 4.7 per cent for the full-year, pointing out that a global recession was now almost certain. 

Rating firm CRISIL said the pandemic will leave the economy crippled next fiscal year pulling down the growth to a low of 5.2 per cent.

Moody’s Investors Service marginally cut down India’s GDP growth rate for 2020 from its February projection of 5.4 per cent to 5.3 per cent. Earlier in February, Moody’s had cut the growth forecast from 6.6 per cent to 5.4.

On the other hand, Standard and Poor Global Ratings have taken more of a stronger stance against India, by downgrading India’s growth forecast of India from 5.7 per cent to 5.2 per cent for 2020. According to the S&P,  the coronavirus pandemic would spark deep recession in not only India but the whole world.

The Organisation for Economic Cooperation and Development (OECD), too, has slashed its 2020 growth forecast for India to 5.1%,

It is clear India is not immune to the recession sweeping across the world, and rating agencies state that India is the only country likely to pay a heavy economic cost of the pandemic since the Indian economy was already in the throes of a deep-rooted economic slowdown. 

Almost every sector stares at myriad challenges and investors pin hopes on government for a substantial stimulus and recovery package.

While the government has begun talking of a rescue package and the RBI is mulling over rate cuts, analysts at discount brokerage firm Wisdom Capital note that the most effective immediate policy response lies in health security controls and not just monetary or fiscal policies.

Though we admit any forecasts at this stage have a high degree of uncertainty but one thing is certain if health systems fail to contain the spread of the novel coronavirus, financial markets may soon have to accept that a global recession is a forgone conclusion.

The mayhem in equity markets has taken Nifty 50 index 33 per cent below its January 20 record intraday high, while BSE flagship Sensex has fallen 11.11 per cent from its all-time-high of 42,273.87 attained on January 20.

That’s the same kind of market damage consistent with an economic recession.

But the market has its up days and down days and does not nosedive all in one hit.

The volatility we’ve seen on the market last week and this week, say analysts at the online trading firm, is set to continue.

Depending on the news flow, it’s entirely possible we will see market moves anywhere between 5 and 10 per cent.

It is the first time anything like this has happened for most Indians and investors are scared.

Despite fear and uncertainty, smart and patient investors and savvy millennials, who comprise a majority of Wisdom Capital’s client base, should think to the future and not resort to knee-jerk selling reaction.

Also, online stock brokers need to look beyond the economic pause we are witnessing and reveal potential buying opportunities that the panic-driven sell off is creating.