We should expect that at some point the economic damage to hit stock markets as well, says the Founder, Capital Mind.


Some banks’ dealings and rising coronavirus infection have led to quite a hefty selloff across the globe. Do you reckon that this is the start of something far worse? Is the door opening for a deep crack?

I cannot say whether it will be deeper than this but the markets worldwide have been weak for the last week or so. We are seeing this as a precursor perhaps to India correcting. US tech stocks have corrected more than 10%. We have not corrected more than 2% or 3%. So we have a bit to catch up.If there is a worldwide signal of a lack of liquidity in stock markets, that might also affect India correspondingly but I think whatever happens the markets are going to be very volatile. I do not look at 2% as a big move. We should correct 5% to 10%. That is healthy. I would not be afraid even if it fell 10% from here.

The other thing which is causing panic across the global markets is the new coronavirus led restrictions in Spain and other European countries including the UK mulling implementation of a second lockdown as the second wave of coronavirus has hit most countries. Do you think that we could see a bigger selloff in the global markets?

To be fair the market did not go up on too many fundamentals. A lot of economies are in bad shape and the recovery rates from the economy itself have been lacklustre. We have seen pockets of performance in some area from an economic perspective. The stock market, however, seems to have given a clean chit to everything. So saying everything is going to come back the same way is unlikely. This is not a disease we know anything about. So the authorities are going to act a little bit ad hoc.

Obviously there will be either lockdowns or a status quo in some way. It will impact the economy but till now, nobody cared about the economy. The markets were going up on their own. It is not that they suddenly start to realise that there could be more issues. I think part of it is also the longevity of the crisis.Everybody might have thought it is only six months and now it seems we are probably staring at another six months and which changes a lot of expectations.

I would expect some kind of correction on that aspect. I do not know whether this is more of a permanent nature or not but as I said, all markets need healthy corrections.The US has already got a sort of healthy correction and India will also come in for some. Our economy has been worse hit than most others and in that context let us just see how much longer it plays but we should expect that at some point the economic damage will hit stock markets as well.

Suffice to say that if indeed this correction in the market is going to carry on and we are going to see steeper cuts, are banks going to bear the brunt of it, considering they have been underperformers?

The banks have two things in front of them, maybe three; one is of course the Supreme Court issue next week where the Supreme Court might tell them that they cannot have interest on interest and so a lot of reversals will happen on certain accounts.

There is another thing which is the RBI restructuring circular where a lot of companies or rather banks and financial institutions have been given the ability to restructure and that will cost them about 10% of those loans as capital requirements if they do restructure purely because of COVID.