Indian Economies impact of COVID situation – Part 1

The way the world is affected by the Corona virus affects almost every sector creating many job cuts and pay cuts. Even though we had a slowdown in the economy from
the first quarter of 2019, markets were increasing due to high liquidity. Coronavirus broke the market creating a perfect excuse for many economies to blame the pandemic
instead of themselves.
Just from Mid of May, the US market started to spike with 5-10 technology stock began to increase rapidly created a small bubble that pushed the markets to new highs
by the beginning of July. This caused an increase in all stock markets follows the same steps. Every economy nearly formed V-Shaped market recovery.
Based on the market, the economy will pick up around August end expecting a pre-COVID scenario. Let’s see what we are facing in real life.

Government Spending: Due to extreme spending and printing of money, the fiscal deficit of every government will take a huge hit causing trouble in spending of future infrastructure creating a lot of Job loss in low paid labor. This causes issues in many construction companies. Personally many of my friends working in
mechanical design was fired due to contract issues. Most of the spending already went to COVID. Nearly 15% of spending went to hospital and health care sector compared to 6% earlier.
The government will have less tax collected from business and income taxes. GDP is expected to fall around 10% annually, expecting -40% in the first quarter of 2020.
The government will cut spending on construction, Employment, and Liquidation of banks.
The government will increase the tax and print currency to fix the issue in the short term causing inflation expecting around 5-6%.

Net result: All economy will be in Stagflation and eating 4-5 years of economic improvement.

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Real Estate: The worst-hit sector is Real estate without a shadow of a doubt. First-quarter of 2020 had only 12% of the overall transaction compared with the previous year.
Real estate expected to take a hit with 20-40% on a short term basis. IT company, Commercial complex, Entertainment centers were impacted and people were not expected to gather in a group and many of the people starting to use web applications. IT complex may not need space, many tools help employees work monitored internally causing
many leases not extended. IT corridor looks empty, commercial complex and entertainment sectors will never be the same as many people started using E-commerce stores and
OTT platforms respectively.

Net Result: Real estate needs at least 6-7 years to be back to pre-COVID levels.

Banking: It looks like a concerned sector but the Government will somehow take measures and try to support the sector to be back to normal soon. Banking related to transport and housing may be in stress due to asset quality but necessary measures on waiver were provided to have the books safe. The Non-performing asset will be
expected to 3-4% in private banks and 6-8% in public banks. NBFC(Non-Banking Finance company) may be affected in the short term as their loans were given for riskier assets.
If the interest payment is not paid by the individuals will pay interest on interest creating a loan book to be increased substantially. The only issue is raising cash in the
second and third quarters will be a concern. Many private banks already raised more cash to get back to their feet. Public banks should depend on government support and will lose more market share as the Government is not having many to spend.

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Net result: Banking will be back to normal in a year.

Inflation: Only way to get the company back soon is by raising inflation. The government printing more currency causes an increase in Inflation. All countries started to
print more currency causing Gold to increase more than 30% in the past 4-5 months.
Expect around 6-8% inflation and the Government will try to under-report the value.

To be Continued… (Part2)

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