Strategy Note /

India: The sum of EM coronavirus fears

  • PM Modi imposes 21-day lock down (like many others, the response has come too late).

  • High urban population density, reliance on informal workforce, and low healthcare provision...

  • ...Likely hamper the containment effort, particularly for the 150mn population over 60 years old.

India: The sum of EM coronavirus fears
Hasnain Malik
Hasnain Malik

Strategy & Head of Equity Research

Tellimer Research
25 March 2020
Published byTellimer Research



There are about 560 confirmed Covid-19 cases, 40 recoveries and 11 deaths (as of the morning of 25 March 2020), out of India's 1.4bn population. PM Modi followed some of India's state government actions and announced a 21-day nationwide lock down.

India equities (MSCI index) are down 40% (worse than down 32% for EM) and the FX rate has depreciated 6% ytd. Trailing PB and PE are on 35% and 30% discounts to the 5-year median, respectively (both deeper than the c25% discounts for both of these measures for EM).

India encapsulates many of our EM-specific coronavirus fears

  • Population density is high (which inhibits the effectiveness of social distancing): India's urban population density is 12,200 (the average across its 110 cities with over 500k population), this is almost double that of China (6,100 across its 211 cities), 10x that of the US (1,200), and closer to that of Nigeria (9,800) [Source: Demographia];
  • Informal labour is high (which makes the impact of an economic sudden stop much worse): in India 84% of the non-agricultural workforce is informal, almost 3x the level in China and the US (29%), and significantly higher than Nigeria (70%) [Sources: ILO, Boston Fed];
  • Health expenditure is low (which likely impedes the ability to treat): India spends c4% of GDP on healthcare, 1pp less than China and closer to Nigeria (3.6%) than Germany (11%) [Source: WHO]
  • Young demographic bias but still a huge elderly population: in India 28% of the population is below the age of 15 years, much more youthful than China and the US (18-19%), although less so than Nigeria (44%); nevertheless the absolute number of elderly people in India is very large with c150m people over the age of 60 [Sources: 2011 India Census, UN, Tellimer Research].

Why coronavirus may be even more damaging for EM than DM

The main argument why most emerging markets will emerge from the coronavirus crisis less damaged than developed markets is their generally younger demographic bias (most fatalities reported globally have been concentrated in older segments of the population). There are two problems with this argument:

(1) While it is of course true that the average age in emerging markets is generally lower than in developed, the demographic represented most by the political elite (who take policy decisions) is likely equally aged. Furthermore, to the degree that many emerging markets have less ingrained (or robust) democratic institutions than in developed markets, the politically most important constituencies tend to come from the older parts of society (e.g. there are no millennials among the leadership of political parties in emerging markets, let alone among the army generals of Egypt, Pakistan, Thailand, or Zimbabwe, or among the tribal leaders in Nigeria, or among the religious hierarchy in India, Iran, or Saudi, for example).

(2) The focus on youthful demographic bias ignores a range of other factors which generally make it harder for the emerging markets to counter the coronavirus. These include the following:

  • Treatment
    • Low level of public healthcare provision. 
    • Delayed coronavirus infection may put FM and EM countries further back in the queue for imported drugs and equipment. 
  • Prevention:
    • Very high urban population density.
    • Higher occupants per house. 
    • Absence of social welfare safety nets. 
    • Existing fragility of the rule of law (or competing sovereignty between federal and provincial authorities).
  • Economic mitigation
    • Tourism and external trade links. 
    • Little policy room (in terms of balancing fiscal balance, inflation, and FX stability). 
  • Geopolitical obstacles
    • Iran, Libya, North Korea, Syria, Venezuela and Yemen face diplomatic, financial and trade isolation or chronic insecurity, which compounds the factors listed above for both these countries and their regional neighbours (eg the GCC and Pakistan next to Iran, Egypt next to Libya, Jordan, Lebanon, and Turkey next to Syria, Colombia next to Venezuela, Oman and Saudi next to Yemen).

These challenges and others (such as a generally older demographic bias) also exist in developed markets but financial resources, welfare state safety nets, healthcare infrastructure, better rule of law, greater levels of education, may mitigate them, all other things equal (eg early imposition of social distancing).

Most emerging and frontier countries face these multiple challenges in dealing with coronavirus and are not able to replicate the draconian social isolation imposed by China, or the combination of widespread testing and (belated) social isolation implemented by South Korea. And it remains to be seen whether we have seen the last of critical infection spikes, or, indeed, how reliable is the data released on infections (eg China new infections have barely changed for the last three weeks). 

That makes these challenges almost universal: it is wishful thinking to imagine that particular countries (or, entire continents, like Africa) may be relatively immune from severe disruption related to coronavirus.

Related Reading - India

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Related Reading - Coronavirus

Coronavirus: Should it be ignored because it is such an unquantifiable risk?, 25 February 2020

Coronavirus: Extreme population density inhibits social distancing in some FM-EM, 16 March 2020

Coronavirus: Informal workforce inhibits response in some FM-EM, 23 March 2020

Coronavirus: Commodity prices hit as fears grow more global, 3 February 2020

Coronavirus: UAE case a warning for global tourism, 29 January 2020