Why Indian stock market remains immune to 2nd

Covid-19 wave?

(Achary, 2021)At a time when economic activity in India had been derailed by the
ongoing Covid-19 crisis, the country’s equity markets seem to be riding the second
wave confidently.

Both S&P BSE Sensex and NSE Nifty50 — benchmark market indices — had
been registering strong weekly gains despite rising cases and declining economic
activity.

(India Today, 2021)India’s Covid-19 crisis failed to spark a deep stock selloff like that
seen last year, and some asset managers point to less stringent curbs on activity as
one factor at least for now.

Even as the nation reported more than 300,000 confirmed infections and over
4,000 deaths a day, India’s benchmark equity index had been moving in line with
regional peers. The S&P BSE Sensex index had declined 6.6% from a mid-
February peak, about as much as the MSCI AC Asia Pacific index. That compares
with a 23% tumble in the Sensex in March last year when
the coronavirus pandemic started to rage globally.

The surprisingly muted stock market reaction to India’s virus disaster was also
seen in net outflows of foreign investors, which totaled about $1.5 billion in April
versus $8.4 billion during the height of the rout last March. More limited and
regional lockdown measures implemented by state governments had prevented a
slide in economic activity like last year.
But the question arises- But how is the domestic stock market performing well on a
regular basis when economic recovery had been threatened by the second wave?

(Achary, 2021)Here were some possible reasons-

STRONG Q4 RESULTS & OPTIMISTIC INVESTORS

Strong results posted by major companies in Q42021 is a key reason behind market
optimism. Many blue-chip companies had seen their value rise on the stock market
due to better-than-expected results. The strong earnings season had helped
investors look beyond the distressing Covid-19 crisis, which is likely to impact
economic recovery in the near term.

In their result commentary, companies seemed confident that business profitability

will grow in the coming quarters. In view of the strong earnings season and
commentary, investors were hoping that most of the stocks will continue to
perform well in future, well beyond the second Covid wave.

There were many other reasons behind investor optimism. Many commodities like
steel and copper were witnessing high demand at the moment. As a result,
investors were pumping in money in such commodities and related companies to
get better returns in future.

nalysts suggest that positive global cues also had a part to play. The rising global
demand outlook, rise in commodity prices and availability of liquidity had taken
the immediate focus away from the surge of Covid-19 cases in India.

RBI'S BOOSTER SHOT

Financial and bank stocks had been gaining over the past few sessions as well and
had been major contributors to the overall stock market growth. They were likely
to register more gains after RBI announced a slew of measures to deal with the
ongoing Covid-19 crisis.

The central bank’s measures were primarily aimed at helping individuals and small
lenders, but they will also help banks and financial institutions to keep non-
performing assets (NPAs) off their balance sheets for the time being.

While it could lead to asset quality issues later, financial institutions were likely to
be protected for the next 12-24 months, said Fitch Ratings.

In any case, the near-term outlook for banks had been strengthened by the
measures and investors were likely to make the most of the opportunity, even as
the overall economic recovery outlook faces risk amid the ongoing Covid crisis.

SENTIMENTS MATTER

Predicting stock market movement is hard, given the fact that it based mostly on
perception and sentiments rather than reality. For instance, the stock market in
India started rallying last year in May when economic conditions were harsher due
to the nationwide lockdown. The unusual rally had puzzled stock market analysts
as all indicators of economic activity had collapsed.

While economic conditions were gradually worsening this year as well,

the devastation had been largely limited due to fewer mobility restrictions. This
had helped business operations continue and the loss of employment had also been
limited to some extent. Exports in the first week of March also indicate a positive
trend.
Even though the country faced a bigger health crisis compared to 2020, it seems
the economic damage had been lower than 2020 when everything came to a
standstill due to the nationwide lockdown.

Bibliography
(2021, May 10). Retrieved from India Today: https://www.indiatoday.in/business/story/explained-why-
indian-stock-markets-remain-immune-to-2nd-covid-19-wave-1800918-2021-05-10

Achary, R. M. (2021, May 21). Retrieved from Business Standard:

https://www.business-standard.com/article/markets/indian-stock-market-in-line-with-global-
peers-even-during-covid-crisis-121051400159_1.html