Skip to main content
Scripbox Logo

Market outlook in times of COVID-19 – A Scripbox perspective for investors

The post-COVID-19 phase is likely to see a significant recovery in the stock prices of good and proven companies. As uncertainty goes down, the prices of these stocks are very likely going to jump up, if history tells us anything.

What is happening?

Markets worldwide have seen the biggest falls since the 2008 global financial crisis due to the impact of the COVID-19 pandemic and oil price shocks. 

The fall in Indian stock markets has largely been triggered by the global fall. Foreign institutional investors have been selling their holdings in the Indian markets.

How bad is the COVID-19 impact?

Things are not clear at this stage. Some believe it’s going to be an all-out end of the world kind of scenario while others believe that we can see this situation resolved in the next three months. 

Things seem to be calming down and getting better in Asian countries which the virus hit early. On the other hand, Europe, especially Italy, and the US are in lockdown phase with casualties rising for now. India has thankfully not seen the same kind of high infection rates and has instituted a voluntary lockdown.

The next few weeks are likely to be critical and there is hope based on past experience that the spread of a viral infection can be contained if lockdowns are effectively practised.

How are markets likely to behave?

We assume that the spread will get contained, tentatively, within the next two to three months. The stock markets will be quite volatile in this phase and big moves are likely to be the norm for this period as has been seen with markets recovering in the first few days of April recovering from the lows of March, for now. 

The next few weeks are likely to be critical and there is hope based on past experience that the spread of a viral infection can be contained if lockdowns are effectively practised.

Why did the stock market fall so much?

There is no doubt that the market fall was severe. As of April 7th, the drawdown  (a technical term for how much the market falls) from the peak is around 27%. This is quite serious. 

What is surprising is the speed of this fall as it has never quite happened this way. One perspective is that hardly any businesses imagined the scale of lockdowns that will be required and the second-order effects of this move.

Which businesses will be affected?

It would be safe to assume a global economic slowdown as businesses with a lot of debt and poor cash flows are likely to find the going very tough. The travel and tourism industry is likely to be worst affected and it will take some time before they see demand for their services return to normal.

On the other hand, there are many businesses which are unlikely to see any significant impact. Companies with solid business fundamentals are likely to fair much better than weaker companies during this period.

What does this mean for the investor?

This market fall has seen the stock prices of some very good companies come down to the extent that the valuation is now looking attractively cheap. 

There doesn’t appear to be a big risk to the revenues and profits of these good companies. The currently cheap stock prices look more like a passing phase.

The post-COVID-19 phase is likely to see a significant recovery in the stock prices of such companies. As uncertainty goes down, the prices of these stocks are very likely going to jump up, if history tells us anything.

This phase is thus a good time to invest or at the very least to continue with mutual fund SIPs rather than stop them as such valuations are extremely infrequent and an opportunity for the long-term investor.

Our Most Popular Categories

Achieve all your financial goals with Scripbox. Start Now