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New Business Dynamics Emerge Amid Lockdown

Author: Dasari SreenivasaRao/Wednesday, May 20, 2020/Categories: Exclusive

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New Business Dynamics Emerge Amid Lockdown

Lockdown 4.0: Burnishing Allure For Stocks; Over 1mn New Investors Dabbling In Trading; Magnitude of economic loss of $30bn for India, upto $350bn for world; job losses soar; Red zones account for 45% of GDP; Annualised rebound pegged at 20%

What’s impacting the business investments at a time when global economy is gradually reopening from lockdown phase. Neither politics nor ideology, it’s pure free-market dynamics or sentiment that will be dictating what happens after the lesson the market has learned before and during a global pandemic, opine market analysts. Let’s explore what’re the changes coronavirus epidemic bringing in…

New Breed of Investors

The 56-day lockdown period, as on May 19, not only jeopardized entire economy, but also paved the way for new bunch of first-time stock traders across India. It’s estimated that over 10 lakh new trading accounts have been opened during the lockdown phase. Several employees, who got a bitter pill in forms of salary reduction, delayed payments, etc., got into stock trading, said a leading brokerage firm. More interestingly, majority of shopkeepers particularly small merchants from tier-2 and tier-3 cities are coming forward to open accounts and attending online sessions on how to make money in stock markets, said Narayana, a senior technical analyst at a brokerage firm. Similarly, many people think that they have no option, but to open a trading account to get their feet wet in the stock markets. In China, mom-and-pop investors hold much sway over the stock market investing. But the $1.6 trillion Indian stock market is dominated by local and foreign institutional investors.

According to the latest data, about 1.2 million new accounts have been opened with the Central Depository Services (India) during March and April. This is higher than a combined 900,000 in January and February.

The domestic stock markets were attracting people from all sections of the society despite S&P BSE Sensex index remains 26 per cent below its January peak, even after rebounding from the sell-off, said a market analyst. The data further indicates that majority of new account registrations from those below 30 years.

The coronavirus outbreak hammered down the stock markets to multi-year lows. So, retail investors globally are upbeat on a buying opportunity and piled into equities. Perhaps, this is burnishing the allure for stocks. Valuations for the gauge have become cheaper, about a quarter below their three-year mean.

The pace of new registrations per month doubled during the lockdown period. The current situation is visible globally. “I don’t know whether it’s investors’ market or gamblers’ market. But I opened an account with Rs50,000 as my initial investment. I prefer long-term investment only,” said a fabric merchant.

Smaller Bitcoins Hog Limelight

Bitcoins (BTC) are back in demand, but this time smaller BTCs since the second halving. The number of Bitcoins with balances less than 1 BTC rose more than 100 per cent since the second halving done in July 2016. The number of smaller Bitcoin small wallets with balances of less than 0.1 BTC recorded significant jump in volumes.

According to data from Glassnode, the number of Bitcoin addresses with a balance of under 0.01 BTC, approximately $86 after the third halving increased 235 per cent as compared to the second halving done in July 2016, surpassed the ten million mark. The Bitcoins with a balance between 0.01 BTC and 0.1 BTC, roughly $86 to $860, increased 204 per cent, and the number of those with over 0.1 BTC, but less than one Bitcoin increased 142 per cent.

Even the number of Bitcoins with addresses over 1000 BTC, $8.6 million increased 13.2 per cent, while the number of wallet sizes between 100-1000 BTC at least $860,000 only rose 6.3 per cent. However, the younger wallets are causing volatility as well, observes a cryptocurrency analyst.

After the March crypto crash, there was some speculation as to whether long-term BTC holders, who had kept their crypto secure in their wallets for over five years, could have been responsible for the downturn. Transactions involving Bitcoins stored for six months or less may have driven the Bitcoin market during 2019s bullish phase and the March selloff.

Oil Prices In Rebound Mode

After rising to, oil prices were mixed on Tuesday (May19) as investors preferred to book profits from previous gains. Brent crude eased 0.6 per cent to $34.6 per barrel. West Texas Intermediate (WTI) rose over two per cent to $32.5/bbl.

Oil prices surged to two-month high on growing signs of a rebound in oil demand. The easing of lockdowns is clearly visible worldwide. At its peak in April, global lockdown measures affected around 3.9 billion people. But an estimated 3.7 billion people are now living in areas that are experiencing some version of a reopening.

The Chinese data fuelled bullishness in oil markets, although there are some mixed signals. Now, traffic is back in many Chinese cities, and early signs indicate that oil demand in the dragon country is rising again close to pre-pandemic levels around 13 million barrels per day (mb/d).

Technically, the oil price is the economic value less the cost of storing oil. During the lockdown period, oil firms have resorted to renting tankers to store the surplus supply and that has forced the price of US oil into negative territory. The price of a barrel of West Texas Intermediate (WTI), the benchmark for US oil, fell as low as minus $37.63 a barrel. On April 25, oil price for May contract fell from &18.27 to $9.06 in the wake of panic deals by traders to offload oil, for which there was not enough physical demand or storage capacity as well.

Economists also predict change of dynamics in the $30-trillon sustainable investing segment i.e. ESG (environmental, social and governance) globally.

Annualised Rebound At 20% 

The Prime Minister NarendraModisarkar announced lockdown 4.0, in force till May 31, with some raiders. Barring red zones, remaining orange and green zones are allowed to resume all the business, commercial and industrial activity with some restrictions as per the norms aimed at containing Covid-19 epidemic. Considering the current hesitation and undercurrent fear among people, it might take more time to revive the economic activity and demand than it was anticipated earlier. Further, red zones across the country account for over 45 per cent of the Indian GDP. Based on April-June and July-September quarters, we can arrive at realistic figures on economy revival, observes an economist. Goldman Sachs in its latest research report predicted that an annualised rebound of 20 per cent in the third quarter, but a gradual recovery of 14 per cent and 6.5 per cent respectively for the fourth quarter and first quarter of the next financial year.

Goldman Sachs in its latest research report predicted that Indian economy may shrink 45 per cent on an annualised basis in the June quarter and by five per cent for 2020-21 financial year. This is more than previous forecast made by Goldman as the global investment bank earlier projected the India’s GDP to contract 20 per cent in the second quarter and 0.4 per cent for the FY-21, and this is showing that the economy contracting far more than previously expected. The 56-day lockdown period took a toll on Indian economy and globally as well. It’s estimated that the combined economic loss for the world economy is upto $350billion and $30bn for India alone.

The writer is a business journalist with 27 years of experience

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