Indian stock market: How big is the Covid-19 risk for equities? Experts answer

Covid-19 fear is back to haunt the markets. Equity benchmarks Nifty 50 and Sensex cracked over a per cent in the previous session on Wednesday, December 20. 

The early trade on Thursday, December 21, continued this trend as both indices initially dropped by almost a per cent. However, they swiftly rebounded, displaying resilience and steadiness, and by 1 pm were trading in the green.

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Experts attribute this volatility to profit booking amid rising Covid cases. They observe that the sudden spike in infections has instilled a cautious sentiment among investors, prompting them to reassess their positions and opt for profit-taking strategies amid this uncertain landscape.

As Mint reported earlier, a new strain of Covid-19 has emerged in the country, raising fresh concerns. Identified as a descendant of the Omicron variant of SARS-CoV-2, JN.1 is the result of a highly mutated strain from the BA.2.86 variant, nicknamed Pirola.

The World Health Organization (WHO) currently considers JN.1 to be a ‘variant of interest’, adding that it presents a lower risk. Yet, many experts believe that we should be careful.

Read More: Covid is spiking again. Just how serious is it now?

A risk to reckon with?

The Covid-19 pandemic caused widespread uncertainty and panic in financial markets worldwide in 2020. Stock markets across the globe suffered strong losses as concerns over the pandemic and its potential economic impact grew.

The rising cases now could instil some sense of caution but it is not alarming at this juncture. While the ongoing risk remains, the market's reaction will depend on how the situation unfolds from here on.

Experts believe Covid is not a major trigger for the market at this juncture. Moreover, they also highlight that the existing line of treatment is expected to be effective against the new variant. Additionally, the government's preparedness against the pandemic is now much better compared to the past.

"Covid is not yet a major threat. It is unlikely to impact the market. Since market valuations are high vulnerability to correction is high, more so in the mid and small caps, any excuse will be used by the bears to trigger a selloff," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Shrey Jain, Founder and CEO of SAS Online underscored the existing line of treatment and existing vaccines are expected to be effective against the new variant of coronavirus.

Jain said the market should factor in the fact that 95 per cent of the population has got two doses of vaccines. Also, government machinery is activated to initiate containment measures. If there is not much adverse impact on the economic activities, then rising Covid cases may not be a major risk for the stock market.

"Nifty50 index has a support in the 21,000-20,800 band. The correction on Wednesday was a minor one but demonstrated where the weakness is. Traders looking for long opportunities should focus on large-cap stocks showing constructive set-ups with strict stop loss. FII selling and changing geo-political scenario may cause volatility," said Jain.

Kaushik Dani, Fund Manager - PMS at Abans Investment Managers said that the situation needs to be monitored continuously, the initial reports suggest that it is not so fatal and preparedness to tackle the virus now has been much better compared to the past.

"Speed, quantum and fatality rate will determine the nervousness of the market. Till that time, it does not seem to be a major risk for markets," said Dani.

Manish Chowdhury, Head of Research at StoxBox underscored that the rising Covid cases in India warrant caution, but the severity is likely to be limited as evidenced by lower hospitalisations.

"With India doing well in managing the contagion last time, we believe that sanity would prevail and we may not see deep correction from these levels in the market," said Chowdhury.

Chowdhury believes the temporary pullback in markets should be an ideal buying opportunity as long-term predicaments such as high inflation, tight interest rate environment and high crude oil prices are behind us. Moreover, institutional money flow (both DIIs and FIIs) and increased hopes of a stable government after the General Elections next year are likely to keep markets supported going forward.

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Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.