The 3-4% cash levels that may be there with the industry may get deployed over the next few days if the fall continues. But the bigger question is how the domestic investors react to it and how policy makers can hand over the domestic investors who have been giving a big support to the market over the last few years. We have seen a big penetration of mutual funds and capital markets in the last few years thanks to the efforts made by everybody including the policymakers. I think it is critical that we ensure that channelizing our savings into our capital markets continue the pace at which it has been there over the last several years because too much of dependence on the global capital coming in through FDI, through FPIs and through some of the other investors like sovereign wealth fund may take some time in the very near term. I think having a rethink on long-term capital gains tax, rethink on TDS on mutual funds, having a rethink on some of the other provisions that were there in the Budget and some of the other policies can be rethought to ensure that domestic money continues to flow into the market and they are in a position to take advantage of the indiscriminate selling that we are seeing from not only the global investors but some of the domestic investors, too, who may have to sell because of the market fall or some of the other challenges in their own businesses. It is important to see how domestic investors react so far we have seen that domestic investors have been behaving in a very mature manner. We have not seen any redemption pressure so far but it is important that all of us work together that at the absolute bottom in the market whenever it gets formed over the next few days people do not end up selling but rather keep everything.
Market never reacts to the same painpoint twice but in this case, the market has reacted to the same thing not once, not twice but five or six times. Do you think markets will get immune and numb and perhaps ignorant to what is happening to the world? Would there be a point in time where financial markets would say, look we have reacted to this news, we are building in a collapse of the world and there is no more scope for us to react. That numbness is not there in the market.
Globally, monetary policy has done a lot and now there is limited ammunition with the global central banks. In India, there are two or three things. One is that, it is very unfortunate that people like you and me who watch all other kinds of charts and data today are looking at the data of the people getting infected by the virus and the number of people died but that is what everybody would be watching. The term which everybody knows now very well flattening the curve. Once we start seeing some signs of that, if we start seeing positive news either on a vaccine or a medication, that would help the markets in soothing the nerves. Also, from a domestic perspective, a very strong policy response on the health crisis front or ensuring that both the financial markets and real economy is well supported and to ensure that India takes the right steps to take advantage of the opportunity that can present itself once this crisis is behind us. The action on those fronts will be very important.
We have discussed couple of times that globally, it is a fiscal policy that will take a larger hit in 2020 even before this crisis because monetary policy has already done enough. What that fiscal policy can do is, one, taking the opportunity of this health crisis to really have a complete rethink to completely redesign the healthcare sector in the world so that we do not have a situation like this coming back again. We need to invest a lot more in healthcare globally. Once that is done, the impacted sectors of the economy need to be supported. Like how some of the countries are doing it by subsidising wages, whether in terms of giving direct cash to people and supporting some of the sectors that are impacted. Third, after a few weeks or few months it will be important to watch how the fiscal policy actually goes ahead in building the new infrastructure like a new deal or a martial plan, which is building the physical, building the social and building the new virtual infrastructure. Once the fiscal policy starts doing it, and corporate world, business world, policy makers, academicians everybody joins in, that will be a big sign for the market reversal. In the very near term, some of the actions that we talked about earlier is something which will make the market a little more confident about venturing out and buying at these levels.
Let’s look at different scenarios. If a medical breakthrough is discovered in the next 15 daysor 20-25 days, what will happen to financial markets then? Say suddenly the USFDA or any other FDA announces that look I have got a cure. What happens then?
In that case, I think we may have a sharp recovery. If we get substantially positive news compared to what we have been getting over the last few days where the epicentre moved from China to Europe and now it looks like the US and everybody has been watching India closely given the size and complexity of our country. If we get any positive news in the next few days, I am sure a lot of investors will go out and would look to buy risk assets at these prices. If it gets extended, then we know that maybe a large part of price correction is over. What we do not know about is a time correction and how long this winter can be before a spring sets in. If god forbid, if it spreads more, all of us need to be a lot more worried about our health than the wealth. That would not be as important but looking at that scenario I would only say one thing. Once a sage was asked what are those words that you can speak in any situation at any place at any time and he replied very wisely, this too shall pass. I give it to human ingenuity over the last several centuries, we have been able to find solutions to several crises as big as this. All I would say is this too shall pass. While we have to be prepared for the worst, while we need to be realistic, I think we need to remain optimistic so that it is not only the challenges in the financial system and our wealth but also we try to do something to save our humanity as a species. That is a much bigger challenge and all of us need to rise to the occasion and do whatever we can to ensure that we come out of this more stronger, more healthier and probably build a far healthier and ar prosperous society going forward.