#IdeaPlus

Until the middle
of February,
the market
grew
handsomely
even with the
initial news of
the virus
outbreak
across the
world.
economy for these two
years were the
deteriorating asset
quality of banks. The
receivables of the bank
didn’t materialize on
time leading to a huge
spike in non-performing
assets (NPA). As a result
of that, banks were not
willing to issue new loans.
Moreover, due to high
profile financial
profligacies and strict
government actions on
the offenders and the
bank managers, new
loan issue dried up as
banks were not willing to
take risk. Consequently,
a liquidity crunch was
created in the economy,
which meant there was
not enough money for
new investments.
However, the rosy
picture of stock market in
this period really didn’t
reflect the sorry state of
economy.
This points to the fact
that though the
economic fundamentals
were not strong, people
still kept buying stocks
and it made the market
overvalued. The price-toearnings
(PE) ratio of
Sensex, which is an
indicator of over or
undervaluation of stocks,
supports the above
argument. The PE
multiple of BSE Sensex of
2018-2019 and 2019-2020
stood at 23.71 and 26.44
respectively, which are a
lot higher than the 10
year average of 20.80. It
indicates that the stock
market was grossly
overvalued. It is this
scenario when the
global pandemic of
Covid-19 came into the
picture.
The Mayhem
It was December 31,
2019 when China
reported a pneumonialike
disease in Wuhan,
which was identified as
the novel Coronavirus.
But it was not before
January 5, 2020 that the
world knew about its
existence when WHO
published its first report.
The market apparently
didn’t take the first signs
seriously and it was not
until February 20, 2020
that they realized that
something is not right. By
that time the pandemic
51