Markets crash as rising Covid 19 cases threaten economic recovery

fundamental analysis for investment

Reportedly, on Monday, domestic markets crashed as benchmark indices S&P BSE Sensex and NSE NIFTY 50 plunged sharply due to a surge in covid cases in the economy. The steep fall in domestic stocks erased close to 9 lakh crore investors’ wealth. This came after discussions were held in Cabinet meeting for  fresh complete lockdown in Maharashtra.

It has been reported that Sensex was down by 1,707.94 (3.44 per cent) at 47,883.38, while Nifty fell by a total of 524.05 (3.53 per cent) to 14,310.80. The two indexes have reportedly now retreated by 7 per cent to 8 per cent each from their mid-February record highs.

As gloomy as it is, on Monday, India reported over 1.6 lakh covid cases. This indicates that the domestic shares may witness weakness throughout the week as India continues to break all records in terms of daily cases.

Experts are of the opinion that the sharp spike in cases could lead to stricter lockdown measures across the country, which could severely impact lakhs of businesses. As it has also been reported that Maharashtra’s partial lockdown itself can cost Indian economy around Rs. 40K crores. Thus, this could ultimately impact the country’s economic recovery.

Investors are also jittery about the fact that IIP and CPI didn’t perform well in the January- march earnings report. To add to this, the investors’ confidence is at an all-time low as the rupee also weakened to a more than eight-month low of 75.1375 against the US dollar.

Sandip Sabharwal of stated that, “if you go and do analysis of the rupee movement, 95% of the time when the rupee has declined, the stock market has declined along with it. A rupee decline obviously leads to higher inflation because every RBI study over the years have shown that a 1% decline in the rupee impact inflation by 0.3%. If the rupee declines  by 4-5% very fast, it has an adverse impact on the market.”

It is to be also noted that the HDFC Bank and Reliance closed more than three per cent lower each during Monday’s session. They were reportedly the biggest drags on the Nifty 50.

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services stated that, “Since the second wave of the pandemic is turning out worse than expected, there is profound uncertainty about its impact on the economy & markets. Since the situation is the worst in economically significant Maharashtra, this can impact the market’s assumption of around 11 percent GDP growth above 30 percent earnings growth.”

Additionally, stocks across most industries declined, with financial and banking shares suffering the biggest blow. Banks were reportedly under pressure as the Nifty PSU Bank index plunged by a humongous 9 per cent.

The Nifty Auto index was also down by 5.11 per cent at closing. Except the Pharma sector index all other sectors suffered losses. The Nifty Pharma index closed only 0.26 percent lower.

On the brighter side, market participants are now eagerly waiting for the start of the corporate earnings season. It is likely to provide some boost to the market. Additionally investors are also likely to keep a keen eye on March retail inflation data, which is expected soon.