Equities to remain in suspended animation till Covid fog clears

Equities to remain in suspended animation till Covid fog clears

MUMBAI: Benchmark equity indices fell around 2 per cent this week as investors’ appetite for risky assets remained low in light of soaring Covid-19 cases and deaths in the country, and rising probability that restrictions may have to be extended.

India reported a record breaking single-day spike in new cases on Friday with deaths topping 2,000 for the first time since the pandemic began.

With the country’s positivity rate inching higher, investors remain concerned that ongoing state-wide restrictions will most likely be extended into May despite Prime Minister Narendra Modi’s assurance that a nation-wide lockdown is out of question.

Modi’s reassurance of no lockdown and the government’s extension of Covid-19 vaccines to those aged above 18 years from May 1 has kept investors from panicking and pressing the sell button as they did in the crash of March 2020.

“The narrative has unfortunately changed very negatively for India. The market is looking through this on the other side and assuming that India will get its hands around it. The unfortunate truth is that India will get there either because of vaccine rollout or because so many people get Covid in this phase that there is herd immunity,” Arvind Sanger, managing partner at Geosphere Capital Management told ETNow.

Yet, investors are unable to fully look past the Covid crisis as India remains one of the worst performing markets in equities and foreign exchange compared to the rest of Asia.

The intense focus on healthcare and ramping up capacity of critical drugs and vaccines also lit a fire under pharmaceutical stocks in the market as drugmakers are expected to have a windfall from the unfolding healthcare crisis.

At the same time, metal stocks were in an island of their own where the ongoing second wave is having next to no effect on the bullishness for the sector given the benign outlook for global growth, expectations of strong domestic demand in the second half of 2021 and consistent price hikes being undertaken by companies.

That said, market participants do not expect the sentiment to change next week as equities are likely to remain lackluster given the Covid concerns and emerging softness in global equities. The weakness seen in US equities on Thursday in light of the Biden’s administration’s new tax proposals will also weigh on domestic equities, said analysts.

“The announcement from state governments and rising Covid-19 cases would continue to remain number one factor for investors to watch out for in the near term. Further, earnings outcome from Nifty majors would induce stock-specific volatility,” said Ajit Mishra, vice president of research at Religare Broking.

Positioning by traders in the futures and options of the Nifty50 also reflected the market’s indecisiveness over the future direction. Traders today sold both the out-of-money Call and Put options of the Nifty50.

In the futures segment, traders unwound their long positions in the April contract of the index indicating that they remained wary of negative news flow related to Covid-19 over the weekend.

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