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Markets slip 1% as increasing localised lockdowns to hit economic recovery

UBS expects economic activity levels to further weaken sequentially, with most states extending mobility restrictions to flatten the curve of covid infections, which is expected to adversely impact real gross domestic product growth in the June quarter. (Mint)Premium
UBS expects economic activity levels to further weaken sequentially, with most states extending mobility restrictions to flatten the curve of covid infections, which is expected to adversely impact real gross domestic product growth in the June quarter. (Mint)

  • India markets continue to face net outflow of foreign institutional investors money in May as regional lockdowns have slowed down economic recovery of the country

Markets lost 1% on Tuesday as investors are growing nervous on increasing localised lockdowns amid rising covid cases. The BSE Sensex slipped 465.01 points or 0.95% to 48,253.51. The Nifty was down 465.01 points or 0.95% to 48,253.51.

Stocks in other Asia-Pacific region were mixed on Tuesday, with major markets in Japan and China still closed for holidays. Hong Kong’s Hang Seng and South Korea’s Kospi closed 1% higher while in Taiwan, the Taiex dropped 1.68%.

According to Binod Modi, Head Strategy at Reliance Securities domestic equities gave-up gains towards the second half of the day and fell sharply as mounting uncertainty led by rise in second wave of covid cases weighed on investors’ sentiments.

“While a persistent increase in daily caseload in several states is still a matter of concern, visible modest decline in new cases in many parts like Maharashtra and Delhi offers comfort. Market participants would be keenly watching out vaccination progress at private hospitals. Further, despite putting enhanced mobility restrictions by states, manufacturing and infrastructure activities have not halted yet and companied appeared to be proactive this time to convince most workers to stay back by offering basic amenities and facilities," he said.

India markets continue to face net outflow of foreign institutional investors money in May as regional lockdowns have slowed down economic recovery of the country. However, FIIs have bought net of $5.84 billion in equity market and are net sellers of $2.39 billion in debt markets since the beginning of the calendar year.

UBS expects economic activity levels to further weaken sequentially, with most states extending mobility restrictions to flatten the curve of covid infections, which is expected to adversely impact real gross domestic product growth in the June quarter. However, with the current set of assembly elections behind us, the markets are expecting covid management, healthcare capacity creation and vaccination to be the key government focus.

Flattening of covid cases will be a key trigger for the market as India has underperformed global equities since March, said Vinod Karki and Siddharth Gupta, analysts, ICICI Securities. “Health crisis has not spilled over into a financial crisis yet as indicated by low spreads, absence of large gross non-performing assets (GNPA) shocks in banking system and improving government finances," they said. The Indian rupee ended higher on Tuesday to close at more than one-month high against the US dollar. The domestic currency closed 0.09% higher at 73.86 against the US dollar, a level last seen on 6 April. The dollar index, which gauges the greenback's strength against a basket of six currencies, rose 0.43% to 91.33.

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