Rising Covid cases in India a non-event for markets for now: Analysts

Sentimental impact of bank failures in the US, global growth slowdown, state elections in India, and RBI April 6 policy in their aperture

Rising Covid cases are not a spot of bother for the markets, at least for now, say analysts who believe there are bigger worries to navigate in the short to medium term.

India clocked a single-day jump of 3,641 Covid cases as the active caseload rose to 20,219, according to official data released on Monday. The daily positivity rate, meanwhile, was recorded at 6.12, while the weekly positivity was pegged at 2.45 per cent.

The tally has risen to 530,892 with 11 deaths — three from Maharashtra and one each in Delhi, Kerala, Karnataka, and Rajasthan — recorded in 24 hours. The count also includes four deaths reconciled by Kerala, according to the Ministry of Health data.
 

“Unless this blows up into substantial numbers wherein we start looking at restrictions on physical movement, on current evidence, this seems a non-event for markets at this time,” says Rahul Arora, chief executive officer-institutional equities, Nirmal Bang.

Meanwhile, Delhi, where the infection count had dropped to nil on January 16, recorded 300 new cases between March 28 and March 29. 

In the past week alone (between March 26 and April 1), the country has seen 18,450 new cases, suggests data, which is a 2.1x rise over the previous seven-day tally of 8,781. The doubling time of cases has dropped to less than seven days.

Chokkalingam G, founder and head of research, Equinomics Research & Advisory, too, believes that the spike in cases over the past few weeks does not worry the markets much at this point. He, however, cautions that the country cannot afford to shut itself in, given that gross domestic product growth rate has moderated significantly.

“The fatality rate has come down considerably after vaccination, compared to 2020 and 2021. The bigger worries for the markets are the sentimental impact of bank failures in the US, global growth slowdown, and state elections in India. Inflation has moderated and is to remain under control. Oil and metal prices have corrected. The US Federal Reserve cannot afford to hike rates aggressively lest it risk having more banks fold up,” says Chokkalingam.

Most experts believe that the recent market correction has made valuations attractive and investors can start to gradually accumulate stocks from a medium- to long-term perspective.

While they do remain cautious on the interest-rate trajectory closer home against the backdrop of a possible rise in inflation in case the monsoon disappoints as a result of El Niño, a 25-basis point rate (bps) hike is on the table in the Reserve Bank of India’s (RBI’s) monetary policy review on Thursday (April 6).

Forty-nine of the 62 economists polled by Reuters expect the RBI to raise the repo rate by 25 bps to a seven-year high of 6.75 per cent.

“India’s sticky core inflation provides an elevated floor for Consumer Price Index-based inflation. Large structural deficits in several key goods and services are the key reason for sticky core inflation in India, which may worsen as rising per capita income drives demand in terms of quantity and quality of essential goods and services. An improvement in supply-side dynamics and increase in the number of services personnel will be important to ensure delivery of quality of goods and services, and manage inflation,” wrote Sanjeev Prasad, co-head, Kotak Institutional Equities, in a recent co-authored note.

Eye on the storm

• Analysts caution that India cannot afford any lockdowns as the GDP growth rate has moderated significantly 
• Experts believe that the recent market correction has made valuations attractive and investors can start to gradually accumulate stocks 
• Most remain cautious on the interest-rate trajectory against the backdrop of a possible rise in inflation
• Experts also say improvement in supply-side dynamics and increase in the number of services personnel will be important to ensure delivery of quality of goods and services, and manage inflation