The Magnitude of Recession in India post COVID-19 Lockdown

With the total number of Coronavirus cases jumping to 17,869 and 567 already deceased in India, the extended lockdown till May 3 also seems less effective. Maharashtra’s major cities including Mumbai and Pune are declared hotspot areas. The pace at which the number of cases is rising, it is certain that lockdown is not going to be lifted after May 3 as well. According to the IMF, developed, as well as developing countries in 2020, are expected to face a recession in 2020. This recession is worse than the 2008-09 financial crisis. The following were the estimates shared by the IMF to show the magnitude of recession the major economies will face this year:

The GDP growth of India is projected to be 1.9% in 2020, much lower than 4.2% in 2019. The downgrade shows the severe impact of COVID-19 on Indian economy. This article analyzes the magnitude of the recession in India. At the end of the article, I will also try and provide a preventive toolkit to survive this recession smoothly.

The State of Indian Economy Before COVID-19 Pandemic

India, the world’s third-largest democracy, had been through a roller coaster ride since 2018. IL&FS default followed by US-China trade war, oil price hike, rupee falling to an all-time low, acute slowdown in the automotive sector, slowdown in the real estate sector, stock markets crashing twice, other NBFCs defaulting, banks going bankrupt, abrogation of Article 370, floods and drought escalated the economy into a credit crunch. Hence, the Indian Economy was already in a massive slowdown. However, with the help of the rigorous measures taken by the regulatory authorities, India was reviving from its slowdown.

Read more about the state of the Indian Economy before the pandemic at Volatility in the Indian Stock Market: Reasons and Why not to Worry? and The State of Indian Economy in 2019

Current State of Indian Economy


In March, benchmark indices of India i.e. Sensex and Nifty witnessed historic falls when the FIIs pulled out INR 1.2 lakh crores from India on fears of coronavirus spread in India. Subsequently, with rising cases, FIIs kept pulling out their investment from Indian markets in April as well.

Source: NSDL

Debt Market

The RBI has been intervening in the Secondary Market by buying T-Bills and government bonds during Open-Market-Operations (OMO) and even off the times of OMOs in order to maintain liquidity in the market. Rising government expenditure and sudden stop in revenue due to COVID-19 has made the debt market very active. Primary Auction bids have risen drastically. The increased buying activity of the RBI has convinced investors to anticipate further such intervention. This has helped India’s Sovereign Bond to rally. The following data clearly shows the increased activity in the debt market.

Value of INR

The increased FPI pull out and initially strained performance of the bond market contributed majorly to Indian Rupee (INR) value falling to more than Rs. 76 against the Dollar (USD). However, with recent measures of TLTRO and TLTRO 2.0 by the RBI have helped INR gain slowly against the USD.

Start-up Funding

The government has recently changed the investment rules from neighboring countries. The Indian Trade Ministry said that investments coming from any entity that is based out of a country sharing borders with India will not be able to avail the automatic route and will need government approval. However, Indian start-ups have received hefty investments from Chinese giants like Alibaba, Fosun, etc. This restricts China from investing freely in Indian start-ups. Hence, China, which is highly interested in investing in India, has opposed the new rules claiming that they violate WTO norms. Also, VCs have narrowed down their investments in start-ups and are highly cautious of any investments. Hence, Indian start-ups may now face difficulty raising funds.


Gold is considered a safe-haven asset, especially during any crisis. The gold prices, however, are fluctuating on a global level and not gaining like it usually would in any crisis. This may be due to travel shutting down in countries that make it difficult to get the gold bars of predetermined ounces, making it difficult for investors to execute their contracts. However, the good news is that the gold price on the Indian Bullion is rallying rapidly over rising demand.

Stock Market

The Indian Stock Market has been swinging on the extreme ends since March. With major historic falls in March end, the market now seems to recover a little. Opportunistic buying, RBI’s intervention through TLTRO and US stocks seems to be the driving factors. However, analysts believe that, if government aid does not come to adequate levels on time, the markets might see lower levels too. For example, Nifty50 may test 7,500 pts level. It is interesting to note that the Indian investors re optimistic about the stock market. However, they are taking positions very cautiously and considering the worst possibilities as well.


The airline industry is the worst affected. The already struggling airlines had to shut down operations completely due to coronavirus and their re-opening date seems far from now. This adds to the costs stressing their balance sheets further. The trucking industry is another badly affected one. Lack of drivers and/or lack of demand is forcing the owners to stop operations altogether. This is eventually hurting 150 million workers who depend on the trucking industry for their bread. Thus the entire logistics is getting affected in a negative way. Products with high demand face issues of delivering them to the destination while others face demand crisis and hence, have to stop operating even though they possess the resources. This is eventually affecting the FMCG as well as other retail industry segments.

Banks and NBFCs

With commerce completely shut in India amid this lockdown, banks are narrowing their lending to the NBFCs. Fears of defaults have risen. Small NBFCs are cutting salaries to keep up the capital for some time. However, if this continues, NBFCs may face bankruptcies too while banks will be burdened with high NPAs. Though RBI’s TLTRO 2.0 claims to help bail out the smaller NBFCs and MFIs who make high risk investments, skepticism prevails. At present, NBFCs have $ 22.9 billions of debts that are maturing by June while banks have already piled up $ 140 billions in bad debts.

Real Estate

Real Estate projects that were already under a major slowdown have to see worse due to COVID-19. Government’s fund to rescue stressed realty projects still have to be executed. There are still a lot of delays faced by these projects, especially due to the difficulty faced in availing the NOC. Delayed projects along with problems in the Banks and NBFCs, is cautioning the Real Estate investors.

Healthcare and Pharmaceuticals

The healthcare segment is placed quite differently amid the coronavirus pandemic. While they see revenue losses amid this lockdown, they are also burdened with investing more into the hospital’s safety, manpower, equipment, etc. Though posed with immense challenges, these companies are in a limelight in the stock markets as well as on top of PE/VC funding list.

Oil and Gas

Global Oil Prices are at the lowest levels since 1986. The WTI futures price went below $0/barrel for the first time. The reason for this massive price fall is the lack of demand due to coronavirus pandemic. India, being one of the major importers of Oil and a crude oil intensive country, these falling prices help India in narrowing the trade deficit and appreciate or at least maintain the value of Indian Rupee.

Future possible outcomes of the Recession after the lockdown


A watch-out amid rising gold prices is RBI’s intervention. If RBI sells gold to fund the stimulus packages then the rally might halt. Analysts also anticipate a major fall in gold prices, just like a reversal. This recession is one of the worst since the Great Depression. Hence, the history might repeat and the peaked gold prices may reverse to fall to all-time lows leaving investors in woes. Hence, an ideal investment of 10-15% in gold seems best to play safe.

Impact on Revenues and Cash Flows

Companies all across India had to shut down operations. Considering the uncertainty regarding the lockdown extension, it is overly optimistic to believe operations may normalize from May 4 onwards. Even if companies start operating from June, partial lockdown and low demand will be the drivers in pulling the revenues down. Consequently, companies will register poor quarterly results. Companies may also face difficulty raising money through banks and NBFCs fueling the stressed Cash Flows. Salary cuts, employee sacking, increased reserves, lower revenues, net losses, lower operating profits or operating losses, etc. may be observed. India’s GDP may see some downfall and a job crisis may be felt temporarily.

Impact on the Stock Market

Poor quarterly financial results of top-performing companies in the economy may fuel panic selling plunging the markets to all-time lows. However, the crash may be a massive correction in the market. It will open up buying opportunities for all sorts of investors. One cannot say with certainty how bad the fall will be. But some negative impact is anticipated with high confidence due to falling GDP numbers, job crisis and poor quarterly results of large-cap companies.

Preventive Toolkit for surviving the Recession

Disclaimer: These are general measures one can adopt. Expert advice from professionals is advised. These are not foolproof and do not guarantee anything.

  1. Maintain an adequate amount of savings at all times. That does not mean you over-save and do not invest anywhere. On average, I suggest, 40% of total income may be saved.
  2. From the remaining 60%, invest your money in various asset classes including the stock market.
  3. Wait for a massive market crash if you want to invest for a long-term time frame (3 years+). You may trade now to book profits within 2-3 months, however, beware of the volatility and high risk in the market right now.
  4. Hold your old securities even if they are in losses. Wait for at least a year or two for them to gain your returns or book profits on days when markets recover. Do not panic sell your securities to regret it later.
  5. Do not take any hasty decision and do not let your emotions overpower you. Believe in your indicator and your guide/agent while investing.
  6. Try not to hoard things as that may hamper speedy recovery of the country. Also, do not waste money on unwanted things that may end up putting you in trouble. Manage your finances well. Prioritize!


The COVID-19 pandemic is not going to go away anytime soon. India is going to see a major hit in the coming months. Inflation may rise temporarily. The government’s role and responsibility have increased in rescuing the nation from a massacre. We have to be prepared for the worst. However, panicking is not the solution. Being cautious and driving carefully on this bumpy road will reap out fruitful results.

MSc Finance graduate from the London School of Economics and Political Science (LSE)
Avatar for Ria Vaghela

Ria V Vaghela is an M&A Executive at RSM UK and an MSc Finance graduate from the London School of Economics and Political Science (LSE). She has worked at Jefferies, Dial Partners and 7i Capital prior to RSM UK gaining an experience of about 1.5 years. She has also worked as an Editor and Content Writer for The Representative Media. Apart from finance, she is interested in reading books on psychology and economics and also likes to paint and play lawn tennis

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