Stock market resilient despite devastating second wave of COVID-19, report finds

Even though India’s case count remains high during the second wave of the coronavirus pandemic and economic activity is at an all-time low, the Indian stock market is moving more in line with its global peers – and has remained overall on a bullish trajectory despite the stumble.

Secondary research conducted by a stock trading platform, Mastertrust, revealed the trends observed in the functioning of the stock market during the COVID-19 era.

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 inject money and stimulate economic activity.

According to Mastertrust, the overall package which amounted to Rs 20,970,053 crore included the stimulus of Rs 1.92 crore from measures announced by the government, such as the Pradhan Mantri Garib Kalyan package of a value of Rs 1.7 lakh crore. Therefore, in the first wave, from March 2020 to November 2020, the Nifty index hit a low 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 due to a higher death rate. In India, the first wave of the COVID-19 epidemic was brought under control in the first week of November 2020. According to Mastertrust, after suffering the brunt of the crisis and the closure that followed last year, the business profitability recovery model continues to be strong.

However, as the economy is rocked by the second wave, the recovery is likely to be delayed. According to the analysis, in this case, the organized / business sector could be much less impacted than the unorganized sector.

“The expectation that the Indian economy would not be as badly affected as the previous year was also reflected in the rupee, which was able to recover a majority of last month’s decline. Another point is that bond yields benchmarks fell further by around 11 basis points after the central bank announced its version of quantitative easing in April. In addition, foreign institutional investors (FIIs) continued their buying frenzy. ‘Indian stocks. The constant buying interest in IFIs is driven by the abundance of liquidity, vaccine development, slight signs of economic recovery and expectations of stimulus packages from developed countries, “he said. -he adds.

The adjustment of the MSCI index boosted sentiment. Strong corporate earnings in the country further boosted favorable sentiment in Indian markets.

The second wave appears to be a repeat of what happened between March and June 2020. However, from a market perspective, it is not the same. When the pandemic first erupted, few were aware of it as it was a totally unexpected and unforeseen disaster that had hit the world and stopped it. But now the impact can be estimated to some extent. Instead of announcing a nationwide lockdown or a global lockdown, governments are instead ready with a localized response whenever needed.

In addition, after experiencing it for the first time, companies are now better equipped to deal with the effects and continue to operate as they have developed procedures for operating under containment, reduced unnecessary costs, streamlined business operations and , in several cases, capital raised.

Additionally, having experienced it before, businesses are now better equipped to deal with the consequences and continue to operate, having developed procedures for operating during a lockdown, reduced unnecessary expenses, streamlined business operations, and in some circumstances. , even raised capital. .

Current state-level phased restrictions on non-essential services instead of a blanket nationwide lockdown indicate that the overall impact of Wave 2 will most likely be small compared to Wave 1.

“The stock market is currently supported and supplemented by global sentiment and liquidity. Although India is seeing an increase in COVID-19 cases, several developed countries are seeing a steady decline.

Hence, it greatly supports the Indian markets. In addition, the gains are justified by the stimulus measures of central banks both at home and abroad. This comes with signs that the current second wave in India is reaching its peak and is raising optimism that India’s long-term economic growth will emerge from the crisis intact, ”said Palka A Chopra, vice-president. -President President, Master Capital Services.

The impact of Covid-19 on the stock market was opposite in the second wave compared to the first. The Indian stock market has consistently posted strong weekly gains despite increasing cases and declining economic activity.

Predictions for the third wave

According to Mastertrust, if the vaccination campaign is not effectively accelerated and the appropriate behavior for COVID-19 is not strictly observed, there is an imminent possibility of a third wave in six to eight months. While laxity on the part of people may make the third wave inevitable, its timescale cannot be predicted as to when it may occur.

The third wave could be a brutal shock to some service companies specializing in travel, tourism and hospitality, according to the report.

“Restaurants, hotels and similar establishments have already suffered huge losses during the current crisis and have barely recovered from the first two waves. Another wave could spell the end for many such companies. While the travel, tourism and hospitality sectors will primarily feel the heat of the third wave, other important sectors such as trade, construction, real estate and retail will begin to suffer losses if the situation is not improving “, adds the report.

Warning: The opinions and investment advice expressed by the investment experts on CNBCTV18.com are theirs and not those of the website or its management. CNBCTV18.com advises users to consult with certified experts before making any investment decisions.

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