Responding to Pandemics
The recent bloodbath in the Indian Markets and across the globe, triggered majorly due to the Covid-19 virus has got everyone questioning if the markets will ever retain their touched levels anytime soon.
Though, surely, the sell off might be triggered due to certain other factors too like the uncertainty due to the OPEC deal failure. We have arrived to a place where we question what exactly is the right time to buy in this market which is facing continuous sell off and nervous jitters.
Even though, the world has been through similar pandemics with probably higher fatality rates, the recent trend of the Indian marketplace and the Dow Jones bloodbath shows how uncertain we are about this disease, its containment and its possible impact on the global economy.
This eternal question of “Is it the right time to buy?” might make everyone wonder “How have we reacted in similar situations previously?” After all, equity is all about the collective opinion and trust on the institution and instruments.
Talking strictly in context to the Indian market, and narrowly filtering Nifty 50 and Sensex for our analysis, we will take a look at the last few biggest pandemics and the reaction of Indian Market towards them.
Though some of these pandemics might not have a devastating impact in India, but the global impact and significance of the pandemic makes it necessary for us to study since India’s trade and economy gets affected.
Taking “Month End” as the month when the pandemic ended and understanding the half and yearly percentage change in both Nifty 50 and Sensex, it will give us an understanding of how the markets reacted post the pandemic and how much time does it actually take to recover.
Of course, this might tend to generalize which is not the objective of this approach. Looking at the previous epidemics will help us gauge an approximate market reaction towards the current ongoing pandemic and probably help us react better as the current fizzes and foam continue.
Though, there is an important assumption here, which goes as following-
- The “other” market forces were taken constant and were not considered which might/might not have been responsible for the growth/decline
While we look at the 6 Month and 12 Month percentage change from the time the pandemic ended, it is of utmost importance we figure out how big was the impact of the pandemic/epidemic. Hence, we also look at the 6 Month trending of Nifty 50 and Sensex till one month before the pandemic ended.
We clearly see a nervous Indian market in all the seven cases of widespread panic. Though, Nipah wasn’t really impacting anywhere outside India, we have taken it here due to the Indian markets context.
Looking at the current panic in the Indian markets, and assuming Covid-19 is subsequently taken care of, this might be a time to observe and time the buying correctly to ensure maximum short-term(6–12 Months) and long term gains.
If we notice how the market remained majorly flattish during the SARS pandemic, but the 6 and 12 month percent change from the month the pandemic ended is massive.
We can see a similar trend in the Swine Flu and Ebola outbreak in 2009 and 2014 respectively. While Nipah remains largely to the Indian context, MERS and Zika fails to show any direct cause-effect relationship as the impact change and the subsequent 6 and 12 month percent change remains largely flattish. But it is important to note that no negative cause-effect relationship was established in any of the cases.
The impact change percentage helps us gauge the panic and mood of the markets over a longer half yearly period of time during the pandemic. We have avoided sporadic periods by not focusing on a shorter period of time as it can give us a wrong picture and a very myopic understanding.
It is also important to note that media’s widespread coverage could be one of the important factors in the fearful reaction of the market during Ebola, SARS and Swine flu pandemics, thereafter igniting a massive buying once the situation got under control. The media coverage and subsequent fear gripping the market is worth noting in all the three pandemics.
However bad the pandemic may seem, we have taken control over these in the past with most of the diseases subsiding in Spring/Summer. It is, therefore of great importance to get the timing of entering a stock right to minimize the risk considering other market factors remain constant.
The Indian market’s reaction to the highly panic stricken pandemic has largely been positive in the 6 to 12 month time frame. Whether the current onslaught will continue and if it is the right time to invest can only be answered by prudent current affairs and market analysis, minimization of risk, choosing the correct portfolio and getting the timing right. These will be the critical factors determining market positions after a year.
