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Why the stock market is falling sharply in India

Amitabh Tiwari
·Columnist
·4-min read

The Sensex as well as the Nifty50 fell by over 2% today (19th April, 2021) amidst a spike in coronavirus cases in India. Among the sectoral indices, the Nifty Bank declined by over 4%. Pharma and IT indexes registered less than 1% fall.

The Sensex trading at 47,700 levels is down almost 10% from its 52-week high of 52,516.76 achieved in mid February after the Budget. The YTD (year to date) returns from the benchmark index have turned negative (-0.12%). In the last one month, the Sensex has declined by over 4%.

The second wave of COVID has swamped India. It is registering the highest number of daily cases in the world. Number of new cases has risen exponentially from 13,000 on 19th January to 2.75 lakh on 19th April. We recorded 1,620 deaths yesterday setting a new record of daily deaths.

One out of every case globally is coming from India. We are registering new peaks everyday. Cases have more than doubled in a week’s time. 10 states are recording more than 10,000 new cases per day.

Sensex performance (Source: www.moneycontrol.com)

Shortages of beds, oxygen cylinders, and critical medicines have been reported from all over India. The centre and the state governments are engaged in a blame game. Crematoriums are full.

Lockdowns, curfews, night curfews are all back in many parts of the country. Mumbai, the financial capital of the country is under a 15 day mini lockdown with only essential services allowed. Many cities observed weekend lockdowns.

Daily confirmed cases in India

(Source: www.covid19india.org)

The Centre has left it to the states to decide on the restrictions this time. District administrations are taking such calls which has made it a bit haphazard as such a high number of cases requires a centralized approach for tackling corona.

As per a Hindustan Times research, curbs have restricted more than half of India’s population (57%) to their homes as curfews / lockdowns in 15 states and Union territories have come into force.

More than 700 million people across the country will be under either a curfew for a limited time period or one that extends 24x7 with largely only essential services allowed.

The vaccination drive has been rather tardy with only 1.4 crore people getting both the doses done. Another 11 crore have got their first jab done. A debate has started as to why we exported without first fulfilling our needs. The deafening silence of the Prime Minister this time is rather intriguing.

Just a few months ago while we were boasting of being a major exporter and rescuer of the world, India is expected to now become a net importer of vaccines having approved Sputnik and Johnson and Johnson variants.

The two domestic vaccine makers are struggling to keep up supplies blaming lack of funds and raw material shortages. These curbs could derail growth. Indian economy has just started to recover from the pandemic blues registering a GDP growth of 0.4% in Q3 FY 2020-21.

As per HSBC, their models imply a loss of close to 0.6% of the country’s gross value added in the quarter ending June as a result of the 15-day lockdown announced by Maharashtra.

Credit Suisse’ calculations, using the percentage of those infected and those vaccinated, suggest that 40% of the population will have antibodies by end-April. The GDP impact, assuming that states other than Maharashtra stick to limited containment measures, could be less than 1% for FY22.

As per DBS, the Covid-19 wave being seen right now may not have consequences as dire as the last time. Morgan Stanley appears a bit more cautious. As per them He says if things get worse, the market correction could deepen.

Adding to the pandemic concerns is the rising inflation in the country. Retail inflation (CPI) soared to a four month high of 5.52% in March 2021, from a 16 month low in January, on account of costlier food items.

The Reserve Bank of India has supported maintaining the existing inflation target of 4% within a band of 2 percentage points. A rise in inflation could reduce chances of interest rate cuts amidst economic disruption fuelled by further lockdowns.

The market does not like uncertainty and the current spike with no respite is making it nervous. The fears of a return of total national lockdown which could plunge GDP, reduce profits of companies and halt economic activity, is spooking the markets and investors.

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