Indian stock markets show surprising immunity to COVID attack
Investor optimism and global signals keep equity markets from plunging, but economic stability key to sustained growth, experts say
The new fallback line among stock brokers would be: “Only one Indian entity is fully immune to COVID – these are the markets. “
it is a known fact now that the only time the Indian stock market was really beaten by the pandemic was in March 2020. This is when the first cases were reported, a nationwide lockdown strict was enforced; uncertainty was widespread and markets collapsed.
Since then, the movement has been mostly on the rise. From around 28,536 on March 25, 2020, when India experienced its first full-fledged COVID lockdown, the Sensex grew in spurts and jolts to close at nearly 48,691 on May 12, 2021. End of May and start The escalating COVID deaths impacted markets in June, but general optimism remains in place.
The incongruity between stock market performance and the prevailing situation is the subject of much discussion. The second wave of the pandemic and the lockdowns put in place by most state governments are hitting businesses hard. The manufacturing and service sectors are expected to suffer a severe blow in the first quarter (April-June) of this year. Already, most of the global agencies, with the exception of the Reserve Bank of India (RBI), have lowered their projections for India’s GDP growth for fiscal year 2021-2021.
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There is currently a drop in the number of new COVID cases in India, but the overall numbers remain substantial. While the vaccination campaign has been mostly successful in advanced countries, further easing the strain on their economies, there is not much joy on this front in India either. Only a fraction of the population has been vaccinated and the vaccine shortage is hampering the program.
India’s second COVID wave could reduce GDP growth by up to 2.8 percentage points in FY2022, derailing what has been a promising recovery in the economy, profits and credit metrics over the year to date, ”S&P Global said in a report. “Limited vaccine coverage and exposure to more infectious COVID variants may mean this wave of infection may peak, with significant effects on credit and financing conditions. ” [June, however, has been showing a declining COVID trend with new daily case count remaining below the one-lakh mark].
So what is it that sustains the markets? Global signals play a dominant role, experts say. Most of the clues in the West are working well because the pandemic is largely contained there. In addition, stimulus packages announced by various governments elsewhere have helped reduce liquidity and bolster market sentiment. This could have a ripple effect on Indian markets.
It’s also possible that investors are patient, with an eye on long-term growth, market watchers say. After the first wave of COVID, pent-up demand had boosted sales with a vengeance, and a recall could be expected now.
However, market experts insist that for national stock exchanges to grow steadily, the economy must be bolstered by stimulus measures. A second sustained wave of COVID could trigger an outflow of foreign funds, which markets can hardly afford.
In a surprise announcement in May, RBI Governor Shaktikanta Das announced a series of measures to increase liquidity and ease debt repayment and compliance standards. However, economists believe that a much larger political step, parallel to a mass vaccination campaign, is critical to this juncture.