With India registering approximately 1 lakh cases a day, several parts of our country are on the verge of total lockdowns.
Metropolitan cities have already started weekend and night curfews as more states move towards completely shutting down if the situation does not improve.
The country is already facing the brunt of a second wave when it hadn’t completely recovered from the first wave.
All of this has already started affecting the broader market. Nifty is down 6.5% since peaking in February. This second wave can knock off as much as 2.8% of RBI’s expected GDP growth for FY2022, derailing the recovery plans in the economy.
With millions of millennials pouring into the stock market, a question lingering on everyone’s mind is what this situation means for the investors.
Let’s take a deeper look into the impact of the second wave of COVID on the stock market and how investors should act in such turbulent times.
COVID And India’s Economic Growth Scenario
The Indian stock market’s passive reaction to the pandemic is puzzling at best. Stalling economic activities has led to an unprecedented negative impact on global economies, but the severity and direction are yet to be quantified.
The government has pushed stimulus packages to restore confidence in the financial markets and boost liquidity. As a result, the NIBRI indicator is down 3 points in the third week of May, levels last seen in June 2020 following a recovery.
The economic impact in this second wave may not be as severe as last year, especially since manufacturing activity has not come to an absolute standstill.
When the COVID surge became apparent in early April, IMF slashed its output growth forecast by 1% after the seasonally adjusted PMI published by IHS Markit fell to a seven-month low.
Even the RBI has refrained from increasing its fiscal growth output, while the government expects GST collections to fall below Rs. 1 trillion in July 2021.
Impact Of 2nd Covid-19 Wave On Investments
Effect Of Lockdowns On The Indian Stock Market
Compared to the previous year, the Indian stock market has shown incredible resilience, which is equally baffling for investors and non-investors alike. Throughout April, the equity market behaved as if the world was not going through a major healthcare crisis, and Nifty kept crawling up slowly yet steadily. That said, defining the cause of this passive reaction can be futile as any reason you ascribe today might not stand tomorrow.
Industry experts believe that consumer staples, pharmaceuticals, information technology, metals, and export-oriented plays are well-positioned for now.
However, with discretionary spending usually stalling during lockdowns, some sectors, like the automobile industry and BFSI, will be worse affected than others.
The real estate sector looks promising this year with indications of sustained investor interest. In fact, realty and REITs emerged as one of the safest investment options throughout the pandemic. Institutional investments carried forward the momentum from 2020 into the first quarter of 2021, registering a 21% growth in origination volumes at $922 million.
That said, average housing prices are likely to stagnate in the second quarter owing to a diminishing demand in the wake of a pandemic surge. However, delectably low interest rates, reduced stamp duty, and premiums falling by over 50% are factors that are likely to boost sales, spelling a capital appreciation opportunity for investors.
The stock market, although resilient, has been inconsistent at best. It’s prompted scores of conservative investors to flock to a safer haven during these turbulent times – gold. In fact, during the initial period of the 2nd wave, gold spot prices shot up by 6% in just 15 days.
An inconsistent stock market combined with 2nd wave anxiety, inflation in the US, and a crippling USD boosted gold’s value. Albeit a seemingly stabilising situation, it’s difficult to foretell where stock markets and gold prices are headed. But, it’s certain that gold is emerging as a notable investment option and is likely to continue its bullish run.
Prospects Of The Indian Equity And What Decisions Make Sense!
Not maintaining an emergency corpus along with a shift in consumer sentiment caught many individuals off-guard last year. Two key rotations noticed the previous year were from growth to value stocks and from resilient (pharma and IT) to sensitive sectors like banks.
Many conventional investors redeemed their money too early, which led to them missing out on a large proportion of capital gains. So, taking money out of equity is not ideal unless there is no other option for liquidity.
In this current scenario, a diversified portfolio of debt, equity, and hedge (e.g., gold) will protect investors against any sharp corrections. Investment marketplaces like KredX have products like digital gold to help investors diversify their asset allocation. Some exposure to global stocks and international mutual funds will act as a safe haven against the impact of virus surge and subsequent falling of the Rupee.
Finally, expect stock market volatility (a lot of it) in the coming months. The best place to invest is in you and your family’s health and future. Make sure that you have life insurance and adequate health cover, especially if your family is dependent on you financially.