One year of lockdown: How have markets fared?

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Last year on this day, Prime Minister Narendra Modi announced lockdown to curb the spread of the deadly coronavirus. However, Covid’s effects are still being felt. Work from home has become a new routine for many while the number of people losing jobs has continued to remain exponentially high.

The situation is unprecedented and so are the reactions. For the financial markets, it came as a double whammy. The economy was already slowing down and when the pandemic struck, the stock market gave a knee-jerk reaction. The Nifty crashed to the level of 7,500 on 24th March 2020.

RBI led from the front

The market however has recovered by 100% since then. The Reserve Bank of India (RBI) has played a crucial role in supporting the market with a capable monetary policy. The central bank adopted a lenient approach with an aim to increase liquidity in the market.

The central bank also implemented several regulatory easing measures. This is to ease credit flows to the retail sector, MSMEs and real estate developers. The central bank extended the loan moratorium to stressed businesses. And, banks were given some relaxations to increase the credit flow into the system.

Uninterrupted FII flow

Lenient money management from global banks has led to a low-interest-rate environment. This has created abundant liquidity in many developed countries. This money has found its way to every emerging market, including India.

India has seen an uninterrupted flow of FII funds throughout 2020. The FIIs made a total investment to the tune of Rs 64,000 crore during the year. Foreign Investors have invested ~Rs 58,000 crore in Indian equities so far this year.

Going Aatmanirbhar

Changing world order post-Covid has led India to promote itself as an alternative to China as a global manufacturing hub.

Several PLI schemes have been announced for 10 manufacturing-intensive sectors. These include automobiles, advanced chemistry cell batteries, telecom, textiles, IT hardware, pharmaceuticals, solar equipment, Food processing, white good components and specialty steel.

The government has also increased its focus on infrastructure development to increase the number of jobs.

Possible concerns

Along with global recovery, high demand for commodities has led to a sharp surge in global commodity prices. It could impact corporate earnings in certain sectors in India in the coming quarters.

Many companies are forced to pass on the increased cost to customers in order to protect their margins. It in turn could prompt consumers to delay their purchasing decisions. Companies in sectors like automobiles, FMCGs, and home appliances have already taken a price hike as a result.

Rising bond yields in the US market have also emerged as a concern for global markets. US 10-year bond yields have climbed to a level of 1.60%.

Back home, the 10-year bond yields have risen to 6.19% from 5.85% in January 2021. Rising yields effectively leads to reduced liquidity in the market. It would also increase the cost of debt for companies, affecting their earnings.

Short-term concerns aside, the move to an Aatmanirbhar economy coupled with an increased focus on making India a global manufacturing hub remain positives for the stock market in the next five years. Post-Covid, India is well on its way to become a global powerhouse. 

(The writer is Chief Investment Officer, Teji Mandi. Views expressed are personal)