Will slow or poor vaccine rollouts cast a shadow over the markets?

| Published on 22nd January 2021 | 54

Will slow or poor vaccine rollouts cast a shadow over the markets?

The day the markets peaked to the 50-k mark also saw a steep sell-off on the back of not just profit-booking by some investors but also reports of a fire at the Pune location of the Serum Institute of India (SII), the maker of the coronavirus vaccine, Covishield. BSE Sensex was down 167.36 points closing at 49,624.76 on January 21.

Five people lost their lives due to the fire even as the SII CEO Adar Poonawalla has assured that the incident wouldn’t affect or disrupt the production of vaccines in any way. SII currently accounts for a major part of India’s covid vaccine programme

Even as markets have surged owing to news related to vaccine developments and rollouts in the past, there are fears that slow vaccine programmes will negatively impact the markets. As of January 21, nearly 10 lakh beneficiaries have been vaccinated in India, although there are reports of some vaccine hesitancy and glitches in the online platform.

India hopes to inoculate 10 million frontline staff by February, 20 million essential workers in the next month, and another 270 million by August. To achieve herd immunity, a substantial portion of the population needs to be vaccinated but if that doesn’t happen, it means there is the fear of further infections. There is also the fear of fresh strains of the vaccine.

Impact on the economy

Poor or slow vaccination will impact the economy. As the Reserve Bank of India (RBI) says in its latest ‘State of the Economy 2020’ report, economic recovery in 2021-22 will be “v-shaped” where v stands for the vaccine. The RBI says if the vaccine programme is successful, it would “tilt the balance of risks upwards.”

The World Bank has, in its latest report, cut its global growth forecast for 2021 to 4 per cent owing to fears of the virus. Although it upgraded India’s forecast by 2.3 percentage points to touch 5.4 per cent this year, from its 2020 June prediction, it has taken a cautious approach. The report notes that infections could spread if vaccines are not pressed into action to cover huge sections of the globe. This could lead to weakness in the economy and push insolvency cases up. Banks may see more bad loans and unemployment may rise alongside a drop in consumption demand.

The World Bank report further adds that the risk of poor or delayed vaccinations and protracted presence of the virus could dent India’s likely growth prospects and wipe out a decade of per-capita income earnings in more than a quarter of countries in the emerging markets and developing economies (EMDEs) category.

Delays in vaccination rollouts and a large section of the population unvaccinated will also drive the need for more stimulus packages from the government and the central bank to prop up economic activity. The markets may continue to hold up, based on the stimulus injections over the short-term but the impact on the long-term may be more far-reaching.

Consumer spending

Sluggish or unpopulated vaccines will spell that people revert to spend conservative spending habits. According to Fitch Solutions estimates, the Covid-19-led shrinkage in consumer spending in 2020 will bounce back and grow by 6.6 per cent. Fitch has forecast that food and non-alcoholic drinks spending will grow by 7.9 per cent you in 2021, from the 10.1 per cent growth forecast for 2020. However, if there are vaccination delays and not a major chunk of the population remains unvaccinated, there is the risk of the spending dropping back to the 2020 pandemic levels. This will impact the average consumer and have a domino effect on stock market investments in sectors such as F&B

However, there could be a continued demand for certain sectors and stocks in the short-term. Take the case of pharma stocks, for example. Irrespective of sluggish rollouts or glitches, there will be a demand for pharma and allied supplies. The same is true of cold storage and last-mile logistics and transport firms or many FMCG sub-categories.

With fresh fears of infection and new waves, there could be more delays in hospitality, tourism or travel sectors opening up. Entertainment is another sector that could be impacted as theatres may shut or suffer from low occupancy.

Conclusion

The year 2020 was a roller-coaster ride for India’s stock markets, which rebounded towards the end of the year even as inflow of foreign funds has propelled the markets to new heights, there is still fear over the status of the vaccination programme. Any sluggishness or glitches on this front will dent economic activity and some sectors may suffer dents while others may expect demand. This may have a ripple effect on the markets as well.