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Mumbai: Indian equity markets erased most of the gains made early Tuesday and were trading flat as strict restrictions were announced in more states amid rising covid-19 cases.

The benchmark share indices were flat with Sensex at 49,195 points, and Nifty at 14,676. Earlier in the day, Sensex had surged 423 points and Nifty gained 141 points.

Sharp spike in covid-19 cases in the country and announcement of mobility restrictions by some states have dented investors’ sentiments. "In our view, domestic markets are expected to remain volatile in the near term until coronavirus spread is controlled," said Binod Modi, head strategy at Reliance Securities.

After strict curbs in Maharashtra, the Delhi government has imposed night curfew until the end of April.

Meanwhile, the Gujarat High Court has asked the state government to impose curfew for 3-4 days in the wake of a surge in covid infections. The court also asked the authorities to stop all political meetings and rallies and large gatherings across the state, The Hindu reported.

Fears of rising covid cases and slow economic growth have turned FII net sellers over the last couple of days. Imposition of weekend lockdown in Maharashtra, which contributes over 13% to country’s GDP and 20% to India’s industrial output does not augur well for economy.

However, analyst still believe that weekend lockdown is unlikely to create any large supply chain issue, and given the experience in 2020 and possibility of further ramp-up in vaccination rollout process, the spread of the virus can be controlled without imposing large-scale economic restriction.

"We continue to believe that any near-term possible correction in the market would be creating an opportunity of bargain trading for investors. A strong pick up in capital expenditures in FY22E, impact of new reforms announced in the budget to stimulate consumption activities and allocation for higher capital expenditures in select large state’s budget for FY22E should continue to support ongoing rebound in corporate earnings", Modi added.

Investors will eye March quarter earnings that starting from mid-April. Analysts broadly expect another robust quarter with double-digit revenue and profit growth.

However, management guidance on the impact of the second covid-19 wave will be a key variable that analysts will look out for, in addition to the effect of rising global commodity prices on margins.

Near-term market direction will also depend on the Reserve Bank of India’s monetary policy announcement on Wednesday. While analysts do not see any immediate change in the monetary policy and expect the rate-setting panel to maintain a dovish stance to address economic growth concerns, they will be on the lookout for the central bank’s views on economic recovery amid rising covid-19 cases and its update on inflation projection.

The markets also await the minutes of the US Fed's March meeting that will be announced on Wednesday.

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