Even as India’s caseload remains high during the second wave of the coronavirus pandemic and economic activity is at an all-time low, India's stock market is moving more in line with its global peers – and has remained on a bullish track overall despite the stumble.
Secondary research conducted by a stock trading platform, mastertrust, revealed the trends observed in the functioning of the stock market in times of COVID-19.
First wave and its impact
Several measures were implemented by the Central Bank and the government during the first wave of the COVID-19 epidemic to pump in money and boost economic activity.
According to mastertrust, the overall package which came out to Rs 20,97,053 crore, included the Rs 1.92 lakh crore stimulus from measures that were announced by the government such as the Pradhan Mantri Garib Kalyan Package worth Rs 1.7 lakh crore. Therefore, in the first wave, from March 2020 to November 2020, the Nifty index made a bottom of 7,511 and a high of 13,145.85.
Second wave and its impact
India is currently experiencing the second wave of the pandemic, which is more severe than the first because of a higher death rate. In India, the first wave of the COVID-19 outbreak was subdued in the first week of November 2020. According to mastertrust, after bearing the weight of the crisis and the ensuing shutdown last year, the recovery pattern in corporate profitability still continues to be strong.
However, as the economy is wreaked by the second wave, recovery is likely to be delayed. According to the analysis, in the event of this, the organised/corporate sector may be impacted far less than the unorganised sector.
"The anticipation that the Indian economy would not take as big a hit as the previous year has also been reflected in the rupee, which has been able to recoup a majority of last month’s decline. Another point is that the benchmark government bond yields have further eased about 11 basis points after the central bank announced its version of quantitative easing in April. Moreover, foreign institutional investors (FIIs) have continued their buying spree of Indian equities. The consistent buying interest by FIIs is driven by abundant liquidity, development of vaccines, slight signs of economic recovery, and expectations of stimulus packages coming in from developed countries," it added.
The adjustment in the MSCI Index has boosted sentiments. Robust corporate earnings at home further raised favourable sentiment in the Indian markets.
The second wave appears to be a repeat of what occurred between March and June 2020. However, from a market standpoint, it isn't the same. When the pandemic first broke out, few people were aware of it because it was a wholly unexpected and unforeseen disaster that had struck the world and brought it to a halt But now the impact can be estimated to some extent. Instead of announcing a nationwide lockdown or a global lockdown, governments are rather ready with a localised response whenever required.
Moreover, having been through it the first time around, companies are now better equipped to deal with the effects and continue operating as they have worked out the procedures for functioning under a lockdown, have cut unnecessary costs, streamlined business operations, and in several cases, raised capital.
Moreover, having gone through it before, businesses are now better equipped to deal with the consequences and continue running, having worked out procedures for the functioning during a lockdown, cut needless expenditures, streamlined business operations, and, in some circumstances, even raised capital.
The current staggered, state-level restrictions placed on non-essential services instead of a blanket nationwide lockdown indicate that the overall impact of the second wave is much likely to be limited compared to the first wave.
“The stock market is currently supported and supplemented by global sentiments and liquidity. Though India is witnessing a surge in COVID-19 cases, several of the developed nations are seeing a consistent decline.
Hence, this is significantly supporting the Indian markets. Also, the gains are justified by central bank stimulus both at home and abroad. This is coupled with signs that the current second wave in India is peaking and building optimism around the fact that India’s economic growth in the long term will emerge intact from the crisis,” said Palka A Chopra, Senior Vice President, Master Capital Services.
Covid-19’s impact on the stock market was opposite in the second wave as compared to the first one. The Indian stock market has been continuously posting strong weekly gains despite rising cases and a decline in economic activity.
Predictions for the third wave
According to mastertrust, if the vaccination drive is not effectively ramped up and COVID-19 appropriate behaviour is not observed strictly, there is a looming possibility of a third wave in another six to eight months. Though laxity on people’s part may make the third wave inevitable, its timescale cannot be predicted as to when it may occur.
The third wave may come as a rude shock to some service-oriented companies engaged in travel, tourism, and hospitality businesses, the report said.
"Restaurants, hotels and similar establishments have already faced huge losses during the ongoing crisis and have barely recovered from the first two waves. Another wave could be a death knell for many such businesses. While travel, tourism, and hospitality sectors will foremost feel the heat of the third wave, other important sectors like trade, construction, real estate, and retail will start facing losses if the situation does not improve," the report added.
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