Further downside for market likely if things don’t stabilise, says Pacific Paradigm Advisors

We have had crisis like these but not a public health crisis. We have had financial market crisis, the Asian currency crisis, the dot com buzz, the 2008. I have lived through many of those and if you look at previous falls, we still have a long way to go if this crisis continues is the word coming in from Punita Kumar Sinha, Managing Partner at Pacific Paradigm Advisors .

"In 2008, India was down over 60 percent. Now we are down a little over 30 percent. So if things don’t stabilize, there is more downside just based on what we have seen in previous cycles,” she said.

“I would say for a week or two, we should watch what is happening because India is lagging on the stage that we are in of the coronavirus. We don’t know whether India is going to remain in terms of numbers as low as it is right now - compared to the rest of the world - or it is just that we are behind in India. I am currently in the US and I am seeing the numbers rapidly increasing about 30-40 percent a day in New York City, in Massachusetts, in a number of states. We are not seeing that same kind of rise in India and we also don’t have the kind of testing that we are gearing up for in the US, we don’t have that in India either. So if things get worse in India then I would say that based on previous market cycles, there could be more downside,” she added.

When asked what will instill confidence in foreign investors and even foreign companies doing business with India and what should the government be doing, she replied, “All governments are putting a stimulus package in place. Given that a lot of people are working from home and there is also going to be economic impact in many countries, governments are coming up with certain kinds of paid leaves, sick leaves, so that people who are not able to go out and work, especially the people whose jobs don’t allow them to get the work done from home, at least there, there is certain amounts of salaries or payments being handed out to protect consumption, to protect demand, to protect their own livelihoods. So that is a pattern we are seeing across the world. "

Moreover, India’s fiscal situation isn’t that great to begin with. So our options would be either to blow out the fiscal deficit completely -- lower oil prices are helping, having further rate cuts by the Reserve Bank of India (RBI) and the Fed has cut to almost zero to 0.25 percent – so there are some tools that we have but compared to 2008, the tools that we have are not that many compared to what we had then. The economic growth then was a little bit better, she said.

According to her, a lot of companies will have some kind of earnings contraction but sentiments can change faster than the earnings. "So, if you look at historic valuations, previous crisis valuations company by company and then future prospects - you will find some interesting opportunities to buy for a long-term. Oil crisis also lead to opportunities and so the long-term investment will find out opportunities,” she further added.

Sector specific, speaking about financials, she stated, “Healthcare, pharmaceuticals is a good sector to be in at the moment. There are consumer discretionary sectors that will be impacted more negatively so one should stay away from them. Financials, generally are very high beta so they go down a lot, they are also very liquid and so that is where a lot of the selling happens. When the markets rebound, they are also one of the first ones to rebound. So I wouldn’t get out of financials because with the liquidity coming in and the needs of the companies to finance further, I don’t think their business will be that negatively impacted unless of course there are more non-performing assets (NPAs) that come out of this crisis, which is a possibility.”