economic recovery: No reason why India won’t see a V-shaped recovery from coronavirus crisis: Jehangir Aziz

We have already seen the impact coronavirus has on China. A significant portion of February’s industrial production, as well as retail sales, have essentially collapsed. We do know now that the disease has spread outside of Wuhan. The spread of the disease has declined but we still have not seen the peak of it. Our own epidemiological model suggests that maybe the peak is going to be somewhere around 110-120 people infected and probably in the first week of March. The bigger problem right now is not China per se but where it spreads starting from Korea. Last week the Korean numbers surprised the market. It later spread to Italy and then cases as far flung as Brazil too started to crop up. No one really knows where and how fast that is going to spread and that is where the fear in the market has been.

Those who have kept their nerves and not panicked in moments like these have emerged as winners. Do you think the average investor should not bother about what the screen and the television ticker is telling you?


Yes and no. If you look at past events like these, for instance when SARS broke out in 2003, China was just 2 per cent of the global trade, today it is about 17 per cent. China contributed marginally to global growth then, but today it constitutes 35-40 per cent of global growth. Obviously, the impact is therefore significant. And the question is whether or not we are going to see a V-shaped recovery the way you saw in SARS. So far, nothing in the developments suggests when we may reach the bottom of the activity.

This is not an earthquake. This is not something where a national disaster has destroyed the capital. It is human life where most of the impact will be felt but by and large, the economy will remain intact. So, there is no reason to believe it is not going to be a V-shaped recovery. The question is will it actually end up permanently hurting supply chains and therefore make it less of a V-shape, and a much more prolonged recovery phase? I am going to see through it because you have to go through the probability that the recovery could be slower. Right now, I do not see anything that suggests that it would not be a V-shaped recovery.

Given the sharp slide that we have seen in crude, the complete selloff that we are seeing on metals, what do some of these indicators mean for the Indian economy in particular?


I am sure that the Indian economy is going to benefit from the decline in oil prices. But let us say, it is indeed a V-shaped recovery, then the commodity prices will also follow a V-shape path and the “benefit” is going to be short-lived. On the other hand, while the oil price is going to bring about some relief, the fact that global demand is going to drop very sharply in the first quarter would mean that India will not escape the impact of that. It may be a delayed impact in the sense that India might react a quarter later to the global decline in growth but India will be adversely affected simply because we are seeing the impact of coronavirus spreading across the world. The chances are we will have a very deep decline in Q1 and in Q2 you will see a very sharp recovery. India will suffer much less because it is not that exposed to China on the demand side, it is more exposed to China on the supply side but the impact will be there.