Markets Look For New Leaders

An extended lockdown is likely to put pressure on equity valuations this year and start the process of change in leadership away from financial and consumer businesse

- SAMAR SRIVASTAVA

In March, investors in Indian equities brushed off the 34 percent fall in the Nifty. After all markets were down globally. India was only tracking that trend.

At that point they believed a nationwide lockdown announced on March 24 had the potential to stop the Covid-19 virus from spreading. As office workers returned and factories restarted production by mid-May companies would get by with just a temporary cut in earnings. The only part of the economy they were skeptical about were banks and finance companies. A three-month moratorium on loan repayments had the potential to significantly reduce their interest income.

As a result, the fall in March was met with an equally ferocious rally in April with the Nifty gaining 29 percent from its March 24 low. Once again this snapback rally was global. But in hindsight, while valuations across most markets recovered India’s would prove to be a dead cat bounce.

Fast forward to mid-May and India’s markets have trailed their global peers. In dollar terms, the Nifty is down 30 percent compared to a 15 percent fall on the MSCI Emerging Markets Index, which tracks the performance of large and mid-cap stocks in 24 markets including Brazil, South Africa and Russia. As India has seen the number of infections rise to 158,000 on May 28, investors have prepared themselves for a long slow grind ahead in both the markets and the economy. Forecasting models have predicted -0.2 to -5 percent GDP growth for FY21.

“There is genuine concern that unless the number of cases stabilises we will be unable to open up the economy meaningfully. The piecemeal lifting of the lockdown is unlikely to get business going,” says a fund manager who invests on behalf of foreign clients. He declined to be quoted citing company policy.