PremiumIndia is among the worst-hit from the second wave of global coronavirus pandemic. Yet, Indian equity markets hardly show any signs of worry. One of the factors that could be keeping investors’ sentiment upbeat is that the global equity markets are in good stead, thanks to the ample liquidity. At the same time, other asset classes such as global gold and commodities have given positive returns of 6% and 10%, respectively in recent months.
However, if one looks at the performance of MSCI India index from the peak of the second wave crisis in March, it is mostly in-line with emerging market peers, which is surprising. In the said span, the MSCI Asia Ex-Japan index has fallen by 1.14% and MSCI India has declined 1.34%.
The resilience of Indian stocks to the ongoing crisis comes against the backdrop of stagnant growth in the business activities of the country’s manufacturing and services sectors. Economists have started lowering their estimates for India’s gross domestic product growth as local restrictions to curb the spread of the virus are likely to weigh on economic growth.
Economists at RaboBank are of the view that the impact on Indian economy will mainly come through a drop in private consumption. “The economic recovery in the first quarter appears to have been strong. But it came at a high cost, as the loose lockdown policy by the government and opportunistic behavior on the part of the population probably caused the second spike in cases. As such, the economy will most likely take a step back in the second quarter," they said in a report on 12 May.
Further, they feel that vaccinations will provide no relief in the short term as supply cannot meet demand. “In a positive scenario, still “only" 35% of the population will be vaccinated by the end of 2021," added the report.
So, the clamour for additional government stimulus is getting louder. It should be noted that India’s debt increased significantly in 2020 following the stimulus package and is now the highest among southeast Asian peers. This means that there is little fiscal space for the Indian government to provide more stimulus support. As for the Reserve Bank of India, it did announce some measures in an unscheduled meeting on 5 May. However, economists say that these may not be sufficient.
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