Is  the COVID -19 impact on Markets  over? A study . 20th Apr 2020

Today the markets opened in positive territory and the Sensex  is @ 31755 and NSE @ 9315 now at the time of reporting.

The nice recovery in the market is heartening. Stocks appear more calm heading into the next week as investors are beginning to factor in the extent to which companies can open up factories and resume production. While much of the labour markets have been disrupted, stock prices have been reacting positively to reopening news. Some of the Pharma shares have gained despite the market in sliding mode.

In addition, volatility is coming off with the India VIX index dropping from highs of 87 in March to 42.53 at present. Stocks are pricing less volatility while the frontline indices try to gain ground. Last week, the bellwether Nifty 50 rose 1.1% and about 18% from its closing lows in March. Of course the volumes are less.

Another big positive is that foreign investors (FPIs)  are also calming down from the panic selling seen in March. In April, foreign portfolio investors withdrew just ₹2,852 crore from equities as per provisional data, which is just a fraction of the ₹65,817 crore sell-off in March. Foreign investors even made some small net purchases on some days in April helping take pressures off the markets.

Of course, some of the India-centric pressures will remain. The global investment banking firm Goldman Sachs reckons that the Indian economy could recover more gradually than some of its north-Asian peers. But it is  heartening to note that the worst seems to be behind. “While markets may not retest fresh lows given reduced global risks, we believe Indian equities are likely to relatively lag the region on expectations of slower recovery. However, more forceful policy stimulus could pose a risk to that view,” said Goldman in a note to clients.

To that extent, the Reserve Bank of India’s enhanced liquidity measures to the tune of ₹1 trillion comes in the nick of time. The governor, Saktikanta Das, promised more stimulus while the RBI has tried to make its measures more inclusive, offering non-banking finance companies a hand to tide over liquidity constraints.

This will help micro -lenders as well. The micro-finance sector’s collections have dipped while defaults are rising, which does not bode well for the sector.

Elsewhere in the market, Radhakishan Damani’s investment in India Cements Ltd is firing up the stock, which is up about 47.5 year-to-date. Shares of other cement firms are down, however, given worries of a slowing economy. But the stock seems to be shrugging off all negatives, including its high debt for now.

Software companies have started to report their financial numbers, and to that extent, the numbers from TCS Ltd does not disappoint. Although, the company cautioned that the current crisis seems much more like the global financial crisis, which is a sign of worry. 

The crude prices falling down is a positive one in the normal circumstances for the Indian economy but the sliding Rupee value causes concern although the exports could be benefitted which is again slowing down. Dollar vs Re is firming up and Gold is also touching new highs.

The results season this far has not been disappointing as the lockdown came into effect in the last week of Q4. HDFC Bank Ltd, in fact, reported a decent set of numbers given the pressures on the financial sector. The country’s largest private sector bank also said that it has shortlisted candidates to succeed managing director Aditya Puri, which will ease the uncertainty around the succession.

However, earnings downgrades are set to continue. The Q4 commentary also holds cues to the damage the coronavirus will cause. Global brokerages are not ruling out substantial negative earnings revisions post managements commentaries. The investment bank also notes that it is too early to assert that equity markets in India have discounted all the negatives. That means the markets may not have much steam left on the upside. 

But Market pundits are optimistic that the worst is behind us and the Equity markets will show the  trend-pattern prevailing earlier i.e., the pre- Covid momentum and status quo ante would resume soon given the fact that the Government and RBI have shown their  alacrity in coping up with pressures.