Indian stock market fails to price in full Covid lockdown
(Bloomberg) – The Covid-19 crisis in India has so far failed to trigger a massive sell-off of shares like last year’s, and some asset managers indicate that less stringent restrictions on activity are at least a factor at the moment.
Even as the country reports more than 300,000 confirmed infections and more than 4,000 deaths a day, India’s benchmark stock index has moved in line with its regional peers. The S&P BSE Sensex Index is down 6.6% from its peak in mid-February, about as much as the MSCI AC Asia Pacific Index. This compares to a 23% drop in the Sensex in March of last year when the coronavirus pandemic began to rage around the world.
The surprisingly subdued stock market response to the viral disaster in India is also translating into net outflows from foreign investors, which totaled around $ 1.5 billion in April from $ 8.4 billion at the height of the rout. last March. They became net buyers of Indian stocks this week after four straight weeks of exits. More limited and regional lockdown measures implemented by state governments have prevented a decline in economic activity like last year, but the risk is that the outbreak will again cause restrictions to escalate sharply.
“A national lockout is not included in the markets,” said Arvind Chari, chief investment officer at Quantum Advisors Pvt. in Mumbai. A sharp drop in equities would, however, provide an opportunity to allocate more to this asset class, as stock valuations have become expensive over the past year, he said.
Businesses are better equipped to continue operating because they know the procedures for operating in a foreclosure, have reduced costs, streamlined operations and, in many cases, raised capital, Chari said.
“India’s current approach to tackling the virus – tiered state-level restrictions on non-essential services rather than a comprehensive nation-wide lockdown – suggests the impact will likely be small compared to last year, ”said Abhishek Gupta, Bloomberg’s Indian Economist, in a note.
Expectations that Asia’s third-largest economy will not be hit as hard as last year is also reflected in the rupee, which recovered most of last month’s decline. Benchmark government bond yields fell about 11 basis points last month after the Reserve Bank of India announced its version of quantitative easing in April.
Indian stocks are moving more in line with global peers, which, despite this week’s stumble, have broadly been on a bullish trajectory. The average monthly correlation between the returns of the Indian Nifty 50 and the S&P 500 rose to around 85% last year, compared to a correlation of 70% over the long term, according to Gaurav Patankar, analyst at Bloomberg Intelligence.
“The market is currently supported by global sentiment and liquidity,” said Manish Kumar, chief investment officer at ICICI Prudential Life Insurance Co. supports Indian markets. “
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