How Indian Stock Market has reacted to the unprecedented Covid-19

Author: Ms. Bhakti A Papnoi

Global market’s reaction to the global pandemic
The world’s most recent unannounced pandemic – Covid 19 has created financial crisis all around the globe. COVID-19 was first detected on November 17, 2019. From that day onward, the situation has been deteriorating. The GDP loss of the world is estimated to be up to 5.9%. Forecast losses and uncertain futures translate into low expected cash flows, rising real and perceived risks, and, as a result, falling stock prices. Khanthavit, A. (2020).

Covid -19 Impact on Top Global Indices
The meagre financial performance of the economy has resulted in a bearish stock market. Due to the negative impact of lockdown on many businesses, the total loss can be to the extent of 0.5% of global GDP. The daily returns of indices like NIKKEI225, DAX, SENSEX, FTSE100, CAC40 and during the COVID-19 period (January 2020–June 2020) show negative mean returns while the pre-COVID-19 period (January 2019–December 2019) has positive daily mean returns. Given the inherent uncertainty in the current environment, however, it is difficult to predict the long-term economic impact of COVID-19, especially since there is no comparable historical benchmark on which to base such predictions. http://dx.doi.org/10.3390/jrfm13090208 (2020)

Response of Indian Stock Market to the Covid-19
Health care was only one of the sectors that could sustain its positive return during COVID-19 period. During the crisis, it is observed that skewness becomes negative with index returns or has shifted into more negative values for a few of the index returns. The negative skewness and higher kurtosis value is an indicator of future risk. Health care was only one of the sectors that could sustain its positive return during COVID-19 period. https://orcid.org/0000-0001-8131-4236 https://orcid.org/0000-0002-3869-2810 (2020)

The only sector to boost in this pandemic: Health &Pharma
BSE Healthcare index represents the healthcare and pharmaceutical sector as a whole. From the period of 1 February 2020 to 24 April 2020(post covid), Benchmark index SENSEX fell down by a staggering 47.69% whereas the BSE Healthcare gave positive returns of 18%. BSE Healthcare index has provided positive returns unlike any other sectoral index, all of which gave negative returns during post-event period. Mittal, S., & Sharma, D. (2021)

Energy sector not so energizing
The energy consumption in India plummeted dramatically by the end of March 2020 because of this lockdown regulation. The study was carried out in WR, NR, ER, SR, NER parts of India. The ER and NER are the poorest regions; the energy consumption has slowed down here. Whereas the NR and SR sector are among the developed regions, hence the energy consumption here got recovered quickly. The result of our study revealed that poorer regions are struggling to recover their energy consumption to levels before the pre-COVID-19.
Jannat, A. (2020) http://dx.doi.org/10.3390/su12145616

Covid-19 has put investors in dilemma
The outbreak of coronavirus has put all the investors in a state of pondering of whether to invest or not, and if yes, then where? In the pre‐COVID period, the main preferences of investors in descending order were stocks, mutual funds, real estate, bank deposits and public provident funds. However, due to uncertainty in the financial markets, investors re‐apportioned their portfolios in a manner that insurance has come out as the topmost preference, gaining from Rank 8 in the pre‐COVID period to first rank during the COVID‐19 period, followed by other assets that climbed up the rank ladder like gold, bank deposits and PPF. During COVID‐19, the preferences for investment have been changed and Risk‐free assets become more preferable. Himanshu ,(2021). http://dx.doi.org/10.1002/pa.2649

Food chain sector caught up in jeopardy
Due to the restrictions on travel, movement, and public gatherings, one of the most badly affected sectors is India’s hospitality sector. A major crisis has hit the hospitality business, including hotels, restaurants, and bars. These were closed due to lockdown, and also consumers are avoiding these places due to the threat of COVID‐19. The pandemic has led the restaurant entrepreneurs fight for their survival. R. N. (2021) http://dx.doi.org/10.1002/jsc.2398

Oil prices see a dip
The spread of pandemic has impacted in the price volatility of natural gas and oil. Studies reveal that from February to April 2020, the prices of oil have been fluctuating largely impacting the prices. As per many reports say, in major city gas distribution (CGD) markets such as Delhi, Mumbai and Gujarat, CNG demand has fallen 70-80%, and many outlets have been shut down. Sarea, A. M. (2020)

Fastest growing sector- livestock and poultry see a major downfall
The incidence of COVID-19 pandemic at the beginning of the year brought an unexpected impact on poultry farming. As per the estimate, the COVID-19 scare and lockdown impacted 10 lakh broiler poultry farmers and 2 lakh layer farmers, and by the end of April 2020, the losses due to the same were estimated at Rs. 27,000 crores. With the closure of the roadside tea stalls, road-side eateries, restaurants, and hotels during the lockdown, a share of about 15% of total milk consumption in the country were almost at complete halt. Biswal (2020) http://www.doi.org/10.14202/vetworld.2020.1928-1933

Indian government’s efforts towards balancing economy and healthcare
In the healthcare sector, India did a remarkable job in reducing COVID-19 related hospitalization and mortality and by creating two vaccines. Through the union government’s initiative, “Self-reliant India Mission” with a special relief package worth Rs.20 trillion, it has helped the country restore the derailed economy to some extent. However, more financial boost is still required to regain the pre-COVID-19 situation in India. Karmakar, S. (2021) doi: http://dx.doi.org/10.2147/RMHP.S291084

Conclusion
It would be very unwise of humans to directly jump into the market seeing the ongoing situation. The problem in the current scenario is that until we know how quickly and thoroughly the public-health challenge will be met, one cannot predict the endgame of this crisis. Even though the country faces a bigger health crisis compared to 2020, it seems the economic damage has been lower than 2020 when everything came to a standstill due to the nationwide lockdown. Once this pandemic is over with normalcy returning to business and economy, the stock market will start moving in a positive direction, and as witnessed in the past, recovery would be faster than expected.

References:

Aruga, K., Md, M. I., & Jannat, A. (2020). Effects of COVID-19 on Indian energy consumption. Sustainability, 12(14), 5616.
Biswal, J., Vijayalakshmy, K., & Rahman, H. (2020). Impact of COVID-19 and associated lockdown on livestock and poultry sectors in india. Veterinary World, 13(9), 1928-1933.
Chaudhary, R., Bakhshi, P., & Gupta, H. (2020). The performance of the indian stock market during COVID-19. Investment Management & Financial Innovations, 17(3), 133-147.
Chaudhary, R., Bakhshi, P., & Gupta, H. (2020). Volatility in international stock markets: An empirical study during COVID-19. Journal of Risk and Financial Management, 13(9), 208.
Dhar, R., Jee, B., & Karmakar, S. (2021). Balancing healthcare and economy amidst the COVID-19 pandemic: An indian experience. Risk Management and Healthcare Policy, 14, 827-833.
doi: http://www.doi.org/10.14202/vetworld.2020.1928-1933
Himanshu, Ritika, Mushir, N., & Suryavanshi, R. (2021). Impact of COVID‐19 on portfolio allocation decisions of individual investors. Journal of Public Affairs,
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Meher, B. K., Iqbal, T. H., Mohapatra, L., & Sarea, A. M. (2020). The impact of COVID-19 on price volatility of crude oil and natural gas listed on multi commodity exchange of india. International Journal of Energy Economics and Policy, 10(5), 422-431. Retrieved from https://www.proquest.com/scholarly-journals/impact-covid-19-on-price-volatility-crude-oil/docview/2459628140/se-2?accountid=141537
Mittal, S., & Sharma, D. (2021). The impact of COVID-19 on stock returns of the indian healthcare and pharmaceutical sector. Australasian Accounting Business & Finance Journal, 15(1), 5-21. Retrieved from https://www.proquest.com/scholarly-journals/impact-covid-19-on-stock-returns-indian/docview/2503981218/se-2?accountid=141537
Vig, S., & Agarwal, R. N. (2021). Repercussions of COVID‐19 on small restaurant entrepreneurs: The indian context. Strategic Change, 30(2)
Website http://dx.doi.org/10.1002/pa.2649
Website: doi: http://dx.doi.org/10.2147/RMHP.S291084
Website: http://dx.doi.org/10.1002/jsc.2398
Website: http://dx.doi.org/10.3390/jrfm13090208
Website: http://dx.doi.org/10.3390/su12145616
Website: https://orcid.org/0000-0001-8131-4236 https://orcid.org/0000-0002-3869-2810

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