Let’s see some trends of recession:
1995 – 2001: The dot-com bubble started blowing from 1995, saw its peak at 18th Feb, 2000 (SENSEX: 5721.65) and burst at 21st Sept, 2001 (SENSEX: 2600.12), seeing 54.56% drop. (The drop was marginally added due to 9/11 attack)
2008 (Subprime loan crisis): Just as market started seeing a steady increase from the fall of 2001, due to increase in low interest loan to people of any credit score and with the blessings of rating agencies like Moody’s, S&P, Fitch market was sure to fall.
Market peaked on 11th Jan, 2008 and saw a fall of 57% on 27th Feb, 2009. Global Markets were affected most by this, Indian markets had fallen lesser than expected. The initial impact on India was muted: GDP growth slowed from 9% in 2007-2008 to 7.8% in April-September 2008, still a very high rate. But after Wall Street collapsed in September, India's growth plummeted to 5.8%, 5.8% and 6.1% in the next three quarters. This is a big fall but better than World Bank’s prediction of 4%.
What we learn from every recession?
-Recession causes a bear market fall at an average of 50% over a long period of time (Stocks drop from peak to low by 50%)
-Increase in unemployment rate by 21%
-GDP drops by 44%
Present Scenario: 14th Jan, 2020 (41952.63) to 23rd March, 2020 (25,981.24) saw a drop of 38.07%
-Estimated Unemployment Rate (FY 2020-21): 25%
-Estimated GDP fall (FY 2020-21) of 57%
-Increasing coronavirus cases
-Poor Health Care infrastucture and lack of operating doctors
-Shortage of coronavirus test kits
-Lack of transparency
-RBI extends EMI moratorium for another three months on term loans.
-Stimulus package accounts to only 10% of GDP
So, while the Indian economy is actually dying, the stock market is High (and looks bullish) due to a false perception (this is only the bear market) displayed by increase in FII investments and also due to increase in retail investors buying in bulk without knowledge (because they feel this is the worse it could get and from now it is only an upward trend) but in reality the worst is yet to come.
Comments