1. Shailesh Kejariwal Sanchit Jain
shailesh.kejariwal@bandkwealth.com sanchit.jain@bandkwealth.com
+91-22-4031 7110 +91-22-4007 6204
25 March 2020

2. 2
With positive cases of COVID-19 reaching the dreaded 500 mark (562 at the time of writing
the report) with 10 related deaths in India (and counting) there is a high possibility that there
will be a continued phase of panic and disruptions as the count keeps increasing. Further,
fear of community transmission, weak healthcare infrastructure and slow reactions by the
government will be factors that play on the minds of investors. Given that the outbreak has
become a global pandemic, we believe the direct impact will be widespread and linger at
least for a few months resulting in a slowdown in business activity, fall in demand and
possible disruption of supply chain in select cases.
What is certain though is that the fight against COVID-19 is going to be long and arduous.
Loss of life, businesses going through a lot of pain for a while, demand will slump and overall
economic activity will sharply reduce. Eventually things will limp back to normal as we
navigate the unknown however the timeframe for a recovery remains a key question. Given
the bottom up nature of economic impact, we see multiple waves of virus driven
uncertainties that will persist for at least the next quarter if not more.
The coordinated action against COVID 19 where most countries have announced complete
lockdowns and economic activity has ground to a halt. Several states, including (Punjab and
Maharashtra) have imposed curfew. In repeated advisories, governments are asking people
to postpone all non-essential travel. The advisory is getting stricter as days pass. On 24th
March a nation-wide lockdown was imposed.
This hopefully will help reduce the inevitable spread of the Virus, but the already fragile
economy may see a rare contraction if the problem persists. Using a simplistic analysis,
we estimate India’s GDP to contract by 3.1% in the Q1FY21 if the government continues
imposing these strict social distancing measures for next quarter (April-June).
We have assumed that most people will postpone their discretionary consumption.
Automobile, Furnishings, household equipment, Transport, Recreation, Restaurants and
hotels, and other discretionary accounted for 38.0% of all consumption expenditure. As a
direct impact of these social distancing measures, private final consumption expenditure
could contract by more than 10.0% (as a percentage of GDP) in the Q1FY21.
Overall, strict measures for one quarter can dampen India’s annual growth by ~2.1% (from
trend rate of 4.5%). However, this is the lower band of the possible impact due to the novel
coronavirus outbreak on the Indian economy. Here, we haven’t considered the second order
effects like fall in private consumption due to wealth effects, rise in precautionary saving,
shutdown of production due to lockdown, and the cascading effects of slowdown on the
balance sheet of India Inc. and the financial institution of the country. Moreover, each day is
bringing new challenges and giving a fair estimate of economic impact is extremely difficult
if worthwhile at all.

3. 3
What needs to be done to soothe markets:
Coordinated fiscal and monetary actions are the need of the hour, FRBM (Fiscal
Responsibility and budget management) acts usual concern of fiscal slippage leading to INR
depreciation and higher inflation should for the moment put in the back burner. Deep rate
cuts are needed (mainly to help financial sector), and RBI needs to provide enough liquidity
to calm markets, Change in credit policy for banks to relax NPA norms etc. may also be
needed. We think the Government and RBI are already way behind the curve in helping to
calm markets. Central banks globally have announced huge support to soothe nerves. Also,
a huge economic stimulus (at least 1.0% of GDP) from the Government to help the bottom of
the pyramid is needed.
On Tuesday, the finance minister spoke to the nation on the issues related to compliance
and regulatory matters. FM announced various relief measures around statutory and
compliance matters related to income tax, GST, customs and central excise, corporate
affairs, insolvency and bankruptcy code, fisheries and financial services. Several deadlines
under Income Tax Act, GST and Customs have been extended to 30th June 2020. Additionally,
to provide relief to retail minimum balance requirements and other bank ATM withdrawal
charges have been waived off with reduction in digital trade transactions. FM assured that
an economic package will be announced soon to limit the economic harm caused by
COVID-19. PM Modi announced that the entire country will be in Lockdown for 21 days starting
midnight to stall the spread of the Virus. Essentials including grocery shops, banks, defence,
public utilities, power generation & transmission and disaster management exempt from
lock down.
While in a financial crisis situation (like 2008), it was possible to estimate the bottom levels for
the market, the current situation is a medical crisis where we have no clue as whether we
are anywhere near the bottom. What differentiates Covid-19 from the virus instances in past
is the higher population growth and changing preferences due to technological
advancement thereby increasing the speed of spread.
The spread of the virus compared to previous pandemics has only been exacerbated by
advancements in travel allowing the virus to spread across the globe at an unprecedented
rate.
Factors to watch out for:
1. Trend in positive cases of COVID-19 in India
2. Flattening of the COVID curve
3. Death in COVID-19 related cases (Fatality rate)
4. Relapse in China of COVID-19 (recovered cases)
5. Second Wave Infections once lockdowns are lifted
6. Action by Central Banks around the globe
7. Stimulus package by government

4. 4
What Should investors do?
1. Fixed Income – The current increase in yields is primarily due to redemption pressure in
mutual funds and corporate bonds as investors are moving to the lower end of the yield
curve.
We believe that the current scenario presents a unique situation, where companies have
to worry not only about the bottom line, but also the top-line (production has been
suspended due to lock-down). It might become challenging for some of the smaller
companies in mutual fund portfolios to be able to service their debt obligations having
cascading impact. As redemption pressure increases, the fund manager may be forced
to sell higher quality papers. Under these circumstances, we recommend investors to
exit credit risk and longer duration funds and re-deploy to overnight funds.
2. Equity – A significant portion of the portfolio has already seen erosion, and it’s difficult to
predict market movements going forward. While we have already witnessed two lower
circuits, there is a high possibility of further fall. Under the circumstances, we recommend
the investor to continue with existing positions and avoid fresh deployment. The best
alternative for the investor would be to do nothing. Clients however can look to start SIPs
to take advantage of the value averaging over the next 6-12 months.
This scenario is one the world has not faced in the past. Eventually we all know that the
pain will end, the virus spread will be arrested and when we look back, this would look like
a great missed investment opportunity. But, since the timeline is uncertain and most
people don’t have the patience and mental strength to sit out through tough times we
don’t recommend being too proactive and jumping in now, although selective buying
from these levels will eventually give great returns.
Indian Equity Market
Index 23-Mar 1 Day 1 Week 1 Month 1 Year
Sensex 25981 -13.15 -17.23 -36.89 -31.92
Nifty 50 7610 -12.98 -17.26 -37.01 -33.58
Mid Cap 10991 -13.19 -19.7 -39.31 -38.05
Small Cap 3373 -13.19 -23.7 -45.27 -48.44
Auto 4627 -13.85 -20.8 -39.9 -44.5
Bank 16918 -16.73 -26.8 -45.33 -42.81
Energy 9851 -9.71 -10.6 -34.28 -39.01
FMCG 23184 -10.6 -6.2 -24.32 -23.23
Infra 2108 -12.05 -15.7 -35.32 -33.84
IT 11180 -9.58 -10.2 -32.85 -28.11
Metal 1496 -11.6 -13.5 -42.71 -49.84
Pharma 6432 -7.47 -7.6 -23.1 -30.08
Realty 174 -11.35 -19.5 -43.15 -34.78

5. 5
FII / Mutual Fund Data
(Rs Cr) 20-Mar MTD YTD
FIIs -3453.27 -49618.93 -34463.86
Mutual Funds 1197.86 22046.91 33303.91
Indian Debt Market
Debt Watch 23-Mar Week Ago Month Ago Year Ago
Call Rate 5.30% 5.00% 5.15% 6.05%
Repo 5.15% 5.15% 5.15% 6.25%
5 yr Gilt 6.46% 6.34% 5.93% 6.98%
10 Yr Gilt 6.34% 6.22% 6.42% 7.50%
AAA Corp 5 yr 8.20% 7.99% 7.00% 8.14%
1-mth CP rate 8.00% 6.00% 5.38% 7.60%
3-mth CP rate 8.00% 6.00% 5.73% 7.69%
6-mth CP rate 8.45% 6.25% 6.15% 8.00%
1 yr CP rate 8.55% 6.65% 6.44% 8.20%
1-mth CD rate 7.30% 5.50% 5.10% 7.60%
3-mth CD rate 7.20% 5.35% 5.41% 7.24%
6-mth CD rate 7.50% 5.85% 5.62% 8.00%
1 yr CD rate 7.50% 6.05% 5.80% 7.50%

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