Editorial
Viral Wave Hits Again
There is quite a bit of chatter among market participants regarding the poor performance of India’s equity markets vis-à-vis global peers. The benchmark index of the National Stock Exchange Nifty 50 is down around 6.64 per cent since its February 2021 peak but benchmark indices in most of the advanced countries are in a prime condition, with some of them hitting new highs during this period. The US bellwether S&P 500 is up by nearly 6 per cent, whereas European indices like Germany’s DAX has rallied around 7.7 per cent and France’s CAC 40 index is up about 7.3 per cent since mid-February.
Considering the relative underperformance by Indian benchmark indices and the capital outflow witnessed from the FPIs, this has fanned flames that the Indian markets have decoupled from the global markets. Everything was fine until mid-February as post the Union Budget announcement Indian markets were racing to new highs almost every single day. However, in mid-February a sharp spike in US’ bond yields triggered a panic in the global stock markets and along with Indian markets, the momentum of rest of the world markets was also derailed.
But the fears of advanced economies soon calmed down to a large extent aided by the USD 1.9 trillion stimulus announced by the Joe Biden administration in March which was soon followed by a retreat in US’ bond yields. These soothing factors provided the much-needed spur to the bulls in the developed countries and within no time their markets were seen trading at elevated levels. And with this the stage was set for the Indian markets to launch, but it was soon hit by the storm of a second wave of the corona virus.
The second wave has gone from bad to worse as the country has recorded more than 3 lakh cases, which is the highest single-day spike ever for any country and furthermore, the cases are rising at a fast clip, which is adding to the woes. The situation on the ground is such that patients are not able to find beds and there is shortage of oxygen as well as Remdesivir, which people call the ‘sanjeevani booti’ for corona virus infection. These things may not be P&L sensitive, but they are certainly adding to the overall environment of gloom.
The healthcare infrastructure is gasping to accommodate and cater to the surging load of cases and the states are resorting to lockdown curbs, impairing economic activity in the process. In addition to this, when the country is facing a health crisis, people put their investment on hold, or they will raise their cash to create some liquidity in case of any adverse medical expenses. So perhaps this could be the reason that markets are not able find any sort of momentum on the buying side as they have been hit by a liquidity crunch.
In other important news, we would like you to recall what we had mentioned in our last editorial: Don’t be surprised if we see that rating agencies and leading brokerages downgrade India’s GDP projections. In line with our anticipation, we have seen some of the rating agencies as well as brokerages starting to lower their projections. Amidst all this, the silver lining from the domestic front is the earnings announcement, which is, so far so good. Also, in favour of the markets are the global cues, which are in the high spirits. Furthermore, international bond yields and the dollar picture are supporting.
Even the crude oil prices have cooled off from recent highs and right now we have to only deal with the domestic woes caused by the second wave of the devastating virus. So, we have everything going for us but the Indian markets have not been able to take advantage clearly because we are an outlier on the downside and market participants are closely tracking the topline number of virus cases. How many cases India adds to the tally every day could be the deciding factor for the Indian markets in the near term. Because as and when the cases start to fall, we could be in for a huge short covering, but let that come is what people are waiting for. Till then the market participants have to deal with some volatility.
