A third wave of the Covid pandemic looms large on India with speculation going rife that the onslaught is expected in a month or two. With its 66 per cent eligible population being vaccinated, the authorities seem more confident this time to fight the pandemic, but fears run high among people about yet another round of lockdown and disruption of social and financial life.
Fast recovery in economic parameters and a booming equity market seem to be soothing the frayed nerves of the investors and also allaying fears of a fresh financial bloodbath. “Even if the third wave hits India in the next couple of months, we don’t see a correction of over 5-6 per cent in the markets as the economy is doing well,” says Shrikant Chouhan, executive vice-president, equity research, Kotak Securities Ltd.
Another positive is that India has started giving more than 40 lakh vaccination doses per day, as per the July average, with the objective of inoculating the entire adult population (approximately 188 crore doses) by December 2021.
“I don’t see the markets correcting due to the third Covid wave. Remember, we did not see the third wave impacting market sentiments in the US and the UK,” says Sunil Damania, chief investment officer, MarketsMojo. He adds that (equity) markets never correct twice for the same reason.
There is the recent precedent of the second wave among market-watchers for this bout of confidence. “If one looks at the impact of the second wave on the market, it was fairly muted, with a correction of 5-7 per cent initially. It recovered over the next couple of months,” says Dhaval Kapadia, director, managed portfolios, Morningstar Investment Adviser India.
This was unlike the onset of the first wave when the markets corrected by 35-40 per cent in India and by similar margins across major global markets. A partial lockdown as opposed to a full lockdown (in the first wave), strong export growth for certain sectors due to resumption in global growth, strong liquidity and availability of vaccines were what kept equity markets buoyant during the second wave.
“In case a third wave hits, the impact on the markets would depend on its severity and spread across the country and on whether fresh full or partial lockdowns are imposed,” says Kapadia.
Besides, the vaccination drive has been picking up. In case of low to moderate severity of the third wave, the impact on the markets may be muted, and in case state or central governments are forced to undertake strict lockdown measures, the impact could be bigger. “Markets may correct at 10-15 per cent during the third wave depending on the (vaccination and lockdown) scenario,” says Palka Chopra, senior vice-president, Master Capital Services.
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