Stock markets remain resilient despite covid-19; use corrections as opportunities

The second wave of COVID-19 hit India at a time when the financial system was witnessing swift restoration led by excessive pent-up demand.
(Picture: REUTERS)

By Vaibhav Agrawal

The second wave of COVID-19 hit India at a time when the financial system was witnessing swift restoration led by excessive pent-up demand. The identical euphoria is lacking from the market as demand revival has been fairly reasonable after the second COVID-19 wave. With the emergence of the Delta Plus variant and the potential for a 3rd wave, shoppers have remained cautious of spending on massive purchases, and a big a part of spending is restricted in the direction of important objects.

Shopper reservations on spending have added uncertainty over India’s progress forecast for 2021. Contemplating the decrease demand offtake, a number of worldwide organisations like IMF and the World Financial institution have lowered their progress forecast from double-digit to excessive single-digit in FY22. Again house, even the RBI has lowered their GDP progress forecast to 9.5% from the sooner projection of 10.5%.

Restricted Influence of Restrictions

One main purpose for muted pent-up demand might be the resilient provide chain administration throughout the second COVID-19 wave. Studying from the availability shock of the primary COVID-19 wave, corporations managed their provide chain effectively, which helped in sustaining the uninterrupted stream of provide even throughout the lockdown.

It may be ascertained from the info comparability of peak lockdown months throughout the first and second waves. Month-to-month container site visitors at Jawaharlal Nehru Port Belief declined to 4.68 lakh TEUs in April’21 however remained considerably greater from the identical month final 12 months when it had declined to 2.84 lakh TEUs.

Railway freight volumes additionally remained at a wholesome degree of three.7 mn tonnes in April, considerably greater than 2.2 mn tonnes final 12 months. The identical was the development in consumption of petrol and diesel. Petrol consumption was wholesome at 2,384 mt tonnes in April after falling to 973 mt tonnes a 12 months in the past. Diesel consumption was at 6,679 mt tonnes in April as towards 3,250 mt tonnes final 12 months.

The info signifies the lesser affect of restrictions underneath COVID 2.0 as in comparison with the primary wave. It stored the availability secure and ensured manufacturing continuity regardless of the interruption.

Inflation Emerges as a Main Concern

Within the present state of affairs, with quicker vaccination drive and progress returning to the developed markets, the specter of COVID-19 is abating quick. Elevating inflation has changed it as a brand new risk that would derail progress. The wholesale worth index (WPI) throughout Could hit a contemporary excessive of 12.9% on account of elevated commodity costs within the worldwide market. Rising WPI has instantly impacted retail inflation with the rising value of home items and providers. It has impacted the buying energy and lowered shopper confidence, finally lowering mixture demand. 

The world is paying attention to greater commodity costs. The most recent coverage bulletins from the US Fed have supplied sufficient hints on this matter. The US Fed has postponed its charge hike plans by a 12 months and introduced to take two charge hikes in 2023, relying on the scenario.

If elevated inflation forces international central banks to withdraw liquidity sooner than meant, it may affect the stream of funds into rising markets like India and derail the restoration course of.

For Now, Commodity Is the King

Key commodities like metal, cement, zinc, aluminium, and many others., have seen a one-way rally for the reason that starting of the restoration cycle as demand far exceeded provide within the worldwide market. This has prompted a rally within the cyclical sectors regardless of the COVID-19 second wave. Having mentioned that, there’s a lot unemployment, and sectors like journey, tourism, hospitality, small MSMEs are a lot affected within the second wave, and the aid package deal introduced by the federal government will assist to raise the feelings going forward.

The month-to-month agriculture manufacturing volumes in 2021 should not solely greater than these in 2020 however are additionally greater than the pre-pandemic 2019 ranges, indicating a revival within the rural financial system. Rural demand, which has been strong for the reason that unlocking of the financial system final 12 months, will proceed its upward trajectory pushed by regular monsoon as forecasted by IMD, sturdy agricultural manufacturing, and lately introduced improve in minimal assist worth (MSP) for all mandated Kharif crops.

Inventory Market Sails Via

Although the second wave impacted the financial system, the Indian Inventory Market hasn’t tanked like final 12 months. It was immensely helped by the online inflows of FIIs and relative ease in restrictions as in comparison with the primary wave. It helped corporations to remain operational in a phased method. We would see some correction due to some near-term velocity breakers, however this ought to be checked out way more as a possibility to allocate extra. The reason being that the Indian Inventory Market is on the cusp of a serious upcycle, and we should always not wager towards India. 

Vaccination: A Lot Must Be Performed

With the variety of new COVID-19 instances now falling, vaccination of all would be the key set off for India’s progress restoration. Whereas India has crossed the US, by way of the variety of administered doses, the nation nonetheless has a protracted approach to go by way of vaccinating its complete inhabitants. 

The federal government has set the goal of vaccinating its complete inhabitants by the top of December 2021. For that, India might want to administer one crore doses daily and require the federal government to ramp up its current infrastructure. As per an estimate, it’d require further spending of Rs 15,000 crore over and above the Rs 35,000 crore allotted within the finances.

(Vaibhav Agrawal is the CIO of Teji Mandi Funding Advisor. Views expressed are the creator’s personal. Please seek the advice of your monetary advisor earlier than investing.)