After a lull of several months when Covid-19 cases had seen a considerable decline, the active cases have been on the rise again, with February 21 registering 14,199 new cases. New cases had hit a low of 9,121 on February 16.
Fears of a second wave and increased restrictions have dragged the stock market down, with the BSE Sensex shedding a little over 1,145 points (2.25 per cent) to close below 50,000, at 49,744 on February 22, the lowest closing points since February 2. The Nifty settled below 14,700-level at close on the same day.
On February 21, active Covid 19 cases in India rose by 4,421, registering a three per cent increase and taking the active caseload back to the 1.5 lakh mark. This has been the steepest rise since the end of November when there was an increase of 3.85 per cent. The latest spike has come on the back of rising caseloads in Maharashtra, Kerala, Punjab, Chhattisgarh and Madhya Pradesh.
Curbs are back
Many curbs are back in place in a bid to nip a possible second wave in the bud. In Maharashtra, there has been a ban on gatherings, night curfew in certain places like Nagpur and a week-long curfew in Amravati. In other states that share borders with Maharashtra and Kerala too, surveillance has been increased.
The Sensex lost 2,400 points in five days not just over rising Covid-19 cases or fear of lockdowns. The other factors include the rise in the US and domestic bond yields and consequent fear of inflation, and the rise in crude oil prices. The rise in petrol prices, which are hitting the Rs 100 mark per litre, has triggered fears that prices of other commodities may rise.
Although the rise in Covid-19 cases and other factors may have impacted the stock market, analysts attribute the current correction to valuations. The markets had in the recent past rallied greatly, thanks to positive sentiments from the Budget which focused on triggering economic growth and the Capex cycle, and an aggressive fiscal deficit of 9.5 per cent for FY21 and 6.8 per cent for FY22. There were also other announcements pertaining to privatisation and renewal of the manufacturing sector.
FIIs continue to be largely bullish
Foreign institutional investors remained bullish and have been net buyers worth Rs 23,875 crore till the week ending February 19. It was only on Monday that FIIs had turned net sellers, offloading over Rs 893 crore, as per provisional data from NSE.
According to Credit Suisse, a brokerage, India has seen a net foreign portfolio investment of $5.2 billion in January and till mid-February, making up for one-fourth of its FPI inflows in 2020. The firm has upgraded its Indian equity market stance to ‘overweight’ from the earlier ‘market weight’ and said the country was in a good place when compared to other economies in Asia.
Bond yields and RBI’s possible moves
The 10-year bond yield in India has risen for four straight sessions and closed at over 6 per cent on Monday. All eyes are on the RBI’s February 25 special open market operation (OMO) worth Rs 10,000 crore where it will buy and sell bonds simultaneously. Any RBI intervention to keep bond yields below 6 per cent will be welcomed by the equity markets.
Looking at the bright side
On the vaccination front, India’s rate has been 3 lakh vaccinations per day but it is only a quarter of the 1.3 million vaccinations target per day. As of February 22, India had provided 11.8 million vaccinations overall since January 16, the beginning of the drive.
The Central government’s plan to increase the current rate to 5 million vaccinations a day over the next one month will be a welcome move in combating the fear of the second wave. This and any possible move to involve the private sector in India’s vaccination efforts will bring back positive sentiments in the stock markets. A NITI Aayog member’s statement to the media that details of private participation in the vaccine drive will be made available soon will buoy the markets.
Experts say that the rise in cases is not a uniform spread across the country and could be the outcome of different testing protocols across the country. There is no clear picture yet on whether the rise in cases is the beginning of a second wave. According to a Fitch Ratings report, the decline in economic activity in the UK and France during the fourth quarter of 2020, were mild, even as there were lockdowns in place. India’s economy and the stock market can take heart from this report.
The markets are likely to react positively and bounce back from Monday’s close on the back of private sector involvement in vaccinations, better containment of cases and other factors like sustained FII inflow and central bank interventions.