Swine Flu effect on Indian stock markets

Swine Flu will show its real impact from October onwards due to winter and from next month onwards if there is revival in monsoons. As usual, stock markets studded with excessive liquidity are underestimating the real impact of weak monsoons and swine flu impact.

World Health Organization officially declared “Swine Flu” as pandemic on June 11, 2009 but it is showing its real impact from July last week onwards. This is the first global Pandemic after 41 years and we don’t know how it behave in this “second wave”. First wave (April-May) was less severe than WHO estimated.

Last global pandemic: Hong Kong flu of 1968.

Precaution: Wear N95 mask and protect from Swine Flu.

Hope: Swine Flu vaccine may be available by late October in India.

Swine flue cases estimates in India:

1,074 Indians are diagnosed by Swine Flu as on August 11th.

1. By September 15: 3,000 cases in India

2. By November 15: 1,50,000 Indians will become Swine Flu victims.

3. By December 31, 2009: 1 crore Indians will be affected by Swine Flu.

4. By August 31, 2010: 30 crore Indians will be affected by Swine Flu.

Important note: Death rate is generally 1-3 per 1,000 but it will be 5-6 in countries like India due to poor health standards. People suffering from Diabetes, BP and Asthma are at more risk.

Swine Flu effect on economy:

1. It will reduce the consumption power of people as people generally spend less in times of Pandemics. It is a severe blow to consumption related stocks which are already reeling under the impact of poor monsoons.

2. Consumption is generally high during festival season and high hopes of companies on festival sales will be severely impacted in September-October season.

3. Pandemics generally reduce GDP growth rates by 0.5-2% according to severity. Swine Flu and monsoons will result in 1% lower GDP growth rate and Indian GDP growth rate will be downgraded to 5.8-6.2%.

4. Stock markets always move on sentiment. It is difficult to estimate the impact of Swine Flu on Indian stock markets when 1 crore Indians will be affected by Swine Flu (as expected) in the next 4-5 months.

5. If Swine Flu cases increase, FIIs will make massive exits due to poor image on Indian health standards.

Important points:

1. Swine Flu and other pandemics behave in strange ways. These strains can become more virulent or subside and erupt after sometime.

Ex. UK was in the grip of Swine Flu just 1 month back and authorities estimated 1 lakh cases per day. Suddenly, Swine Flu slowed down in recent days.

2. We have to frankly admit one thing. No one in the world knew about how Swine Flu or any Pandemic will spread and affect/kill people. Scientists estimate and give targets basing on past pandemic records of 1918 and 1968. They are not reliable statistics.

Swine Flu effect on various sectors:

1. Pharma: This defensive sector is expected to perform well in times of crisis. Swine Flu is a good opportunity for many Pharma companies and especially for viral generics producers.

2. Healthcare: People will visit hospitals even for minor illnesses due to Swine flu fears.

3. Media: People tend to watch more news in times of epidemics. Media companies will get more advertisements in times of crisis and also due to festival season.

4. Hotels and Resorts: This is severe blow to hospitality stocks.

5. Multiplexes: Who will go to crowded places? Only movie maniacs.

6. Airlines: Down and out.

7. Retail: 40% of sales are in the next 3 months (festival season). But, things will change drastically for retail players if people want to stay at home and stop on splurging.

8. Auto: Most of the auto companies are located around Pune which is the epicentre of Swine Flu. There may be temporary factory shutdowns.

News triggers:

1. Government may allow pharma companies to sell Swine Flu drugs at retail shops. Companies that will benefit are: Ranbaxy, Cipla, Stride Arcolab, GSK Pharma, Lupin and Natco Pharma.

2. Swine Flu vaccine may available in India by November. Cadila Pharma will benefit.

3. More demand for lab tests. Ranbaxy will benefit. It has a subsidiary which has nation wide presence.

4. More admissions into hospitals. Apollo Hospitals and Fortis health care are beneficiaries.

Important note on Ranbaxy:

Ranbaxy was corrected from above 600 levels after US FDA ban. But company recently got approval for Sumatriptan from US FDA. This decision will gradually improve sentiment of investors. Ranbaxy has Government nod to produce Swine Flu drugs. Ranbaxy has nationwide labs. Recent quarterly results have shown signs of improvement. Serious long term investors can take positions in Ranbaxy.