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CEA Subramanian on why stock markets crashed today

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After domestic markets witnessed a steep decline, followed by a surprising recovery, the chief economic advisor (CEA) Krishnamurthy Subramanian explained why they had crashed. He said that it was a reflection of global factors. He added that the Indian economy has shown signs of revival in the last few months. While addressing the media on Friday afternoon, Subramanian said that all the major economies of the world have witnessed a decline in their stock markets between January and March. He added that India is still in a better situation.

“If you look at the period between January and March 12, all these countries have had a decline in their stock markets – Russia, Israel, France, Germany, Argentina, UK, US and Japan. All these countries have witnessed a decline of about 20 per cent in their stock markets and India is below them. Firstly, what we are seeing is a reflection of some of the global factors because of the coronavirus,” he said.

Minutes into the trade on Friday, both Sensex and Nifty touched their 10 per cent lower circuit on the persistent coronavirus fears. As result, trade in both BSE and NSE was halted for 45 minutes. However, the markets recovered after the halt, trimming the losses.

“What I want to point out is various aspect of the Indian economy. The CPI-Inflation which came out yesterday is 6.6 per cent Year-on-Year which is much less than the consensus. The decline was majorly due to a decline in vegetable prices. As we had predicted, we should expect the headline to come down by March. That has started. The core inflation itself has come down to 3.9 per cent,” Subramanian said.

WATCH CEA Krishnamurthy Subramanian’s statement

If you look on the production side, the IIP was come 2 per cent higher Year-on-Year, he added.

The CEA said that production of capital goods on month to month basis has gone up by 10 per cent which is a very good news for investment. He said that the momentum has been good in consumer durable for the third consecutive month.

“All these variables clearly point to some strengthening of the economy. To summaries I would say that, what we are seeing over the last few days is a reflection of global factors. As someone who taught finance, I often tell my students that stock markets react to both greed and fear. Currently, there is a fear because of coronavirus,” he said.

“I expect the markets to overcome it in the coming weeks as we get a better handle,” Subramanian concluded.



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