Topic Name: Performance of Indian Stock Exchange during covid 19
Submitted by: Darshana Manoj Shiporkar. (MMS) First Year
Abstract:
This study aims to explore to what extent a 2020 epidemic like Covid-19 had impacted the Indian stock market. The outbreak of the Corona Virus that has begun in December 2019 drastically affected the world. Endemic Corona virus is rapidly growing across the globe. SARS-CoV-2 is the virus name that causes a highly contagious and deadly disease COVID-19. It also entered India by the end of January 2020 and has significantly influenced India. More than two million people worldwide have been confirmed to have been contaminated with this virus. This lockdown has affected every Indian sector, such as the Economy, Retail Sector, Tourism Industry, and Indian stock market etc.
Objectives:
1) To study the performance of Indian stock exchange during the pandemic.
2) To study of the behavior of the individual investors and various sectors during pandemic.
3) To know how to optimize the stock market return during covid 19.
1.Introduction:
The highly infectious COVID-19 significantly disrupted human life. The countrywide shutdown has brought an immediate end to almost all economic activities, This COVID-19 pandemic and lockdown announcements by governments have created uncertainty in business operations globally. For the first time, a health shock has impacted the stock markets forcefully. The stock markets of each and every country experienced a sudden deep fall and many investors and retailers suffered huge losses. India, one of the major emerging markets, has witnessed a massive fall of around 40% in its major stock indices’ value. And instability of demand and supply powers is continuing even after the lifting of the lockdown. The Indian stock market will need time to return to its normal state.
2. Research methodology:
The data related to the stock market during covid 19 is taken from ProQuest peer reviewed journals. And these articles are from India as well as other countries.
3. what is stock exchange?
A Stock exchange also called as the Securities exchange refers to an exchange in which the shares of stocks of the listed companies are bought and sold by the traders and investors. There are two stock exchanges in India, namely the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). Thousands of companies are listed under these exchanges and each of which is placed under a specified sector. There are around 11 stock sectors, the movement of which are highly responsible for the economic status of any country.
4. Literature Review:
4.1 Stock Market Response During Pandemic:
Chaudhary, R et al (2020) in their research on performance of the Indian stock market on the multiple measures of volatility, like standard deviation, skewness, and kurtosis of index returns, concerning two composite indices and eight sectoral indices on the daily data from January 2019 to May 2020 using the GLS regression. And she stated that sub-sample analysis for the composite and sectoral indices before and during COVID-19 period, with equivalent window length, discloses that all indices show lower mean daily return, rather be specific, negative returns in the crisis period as compared to pre-crisis five-month period. In short, the Indian stock market turned out to be more volatile during COVID-19 period.
4.2 Short-Term Impact of covid1-9 on Indian Stock Exchange:
Varma, Y et al (2021) examined period before and after covid 19 and after the announcement of complete lockdown, he found that COVID-19 has increased the risk in the stock market. All the sectors were impacted temporarily, but the financial sector faced the worst Therefore, an increase in resources directed towards the health care system could also have a positive impact on reducing financial volatility. Furthermore, investors can learn from this kind of event to safeguard equity portfolios from unforeseen shocks and make better investment decisions to avoid large unexpected losses by choosing effective hedging or safe-haven strategies.
4.3 COVID-19 Pandemic and Extreme Value Theory:
Khan, M et al (2021) investigate the tail behavior of the NIFTY-50 index by using the POT approach of EVT, for statistical modeling of extreme value returns above a specified threshold. This study illustrates that EVT modeling is very useful for quantifying extreme stock markets. It identifies 657 extreme return points over the specified threshold during the COVID-19 pandemic, amounting to about 5% of total observations. Also, it shows important implications for investment and risk management strategies. It also notices that the GPD model estimated approach is very effective in assessing the extreme market events at times of crisis such as the COVID-19 pandemic.
4.4 Indian Stock Market is it Vulnerable or Resilient? Sectoral analysis:
Shankar, R et al (2021) wrote that the stock market performance in terms of average returns has declined due to the outbreak of COVID-19. As per the analysis, some sectors in India, due to perception of market going bullish once the pandemic is over, are actually gaining trading volume but losing average returns. And the performance of the financial sector as compared to the rest of the economy, the average returns can fall dramatically in near future instead of rising up again. On the other hand, it shows some positive effect of the pandemic on trading volume i.e., during the time of COVID-19, volatility declined in the Indian stock market, which is inversely linked to investor’s confidence. The results from this study remain consistent with investor risk aversion theory.
4.5 portfolio allocation decisions of individual investors during covid:
Himanshu et al (2021) says in the wake of COVID-19, the pandemic has affected the decisions concerning portfolio allocation. And the perceptions of investors about various investment avenues before and during the period of extreme uncertainty caused by the COVID-19 pandemic. During COVID-19, the preferences for investment have been changed. Risk-free assets become more preferable. Insurance is the most preferred investment avenue followed by gold, bank deposits and public provident funds (PPF).
4.6 Impact on Indian Healthcare and Pharmaceutical Sector:
Mittal, S et al (2021) noticed how the outbreak of COVID-19 impacted the stock returns of healthcare sector. BSE Healthcare index represents the healthcare and pharmaceutical sector as a whole, and their closing prices have been taken as the benchmark for further analysis. The results show that COVID-19 outbreak significantly affects the stock performance of the sector. There was significantly positive CAR continuously from day 16 to day 27. Healthcare and pharmaceutical companies would be operating in an effective manner to fulfil the demand for their products and services, which would in turn increase their operating ability and turnover, making them the most lucrative option for investors.
4.7 Impact of Lockdown in the FMCG sector – Analysis using Statistical Methods
Prabu, M. V et al (2021) says that the analysis shows that the sector was in an oscillatory movement at the initial stages of lockdown, during the month of April and May. while the NSE performing in a normal way, the FMCG sector and in particular, the Britannia industries limited has performed in an appreciative manner. This merely indicates the relatively increased demand for the consumer goods. according to their analysis, they arrived at conclusion that the sector was seen growing not only in the initial pandemic period, but also in the subsequent months followed by it. in fact, they noticed that the sector experienced a highly significant volume around the month of September end this must be for sure due to the impact of lockdown.
4.8 Leverage Effect of Covid-19 on Stock Price Volatility of Energy Companies
Meher, B. K et al (2021) says that it has been found that out of top six companies under NIFTY Energy, the data related to the stock price of four companies i.e., ONGC, Power grid, BPCL and Indian Oil Corporation have the asymmetries and asymmetric models can be formed for these four companies. Among these companies two companies’ data i.e., ONGC and BPCL have asymmetries which is properly reflected by TGARCH Model with student t’s distribution and these TGARCH models have highest Log likelihood and lowest Schwarz criterion. The asymmetric terms in the asymmetric models are providing sufficient proof that the volatility of the three of the companies out of six under NIFTY Energy i.e., BPCL, Power grid and Indian Oil Corporation are affected by the COVID-19 pandemic.
4.9 The Impact on the stock Price of Socially Responsible Enterprises:
J. Environ. Res. Et al (2021) stated that the performance of CSR (corporate social responsibility) firms in the stock market during the COVID-19 outbreak. The results demonstrate that the COVID-19 event impacted the overall stock market and caused a significant decline in stock prices. According to the CARs results, CSR companies had positive and negative CARs after the event, but neither was significant. This result indicates that CSR companies were non-significantly affected by the outbreak. his study further compares CSR and non-CSR companies’ stock price performance after the outbreak has been less severe and the stock market has stabilized. The results show that the stock price performance of non-CSR firms was not weaker than that of CSR firms.
4.10 Optimizing Stock Market Returns during Global Pandemic Using Regression
Debnath, P et al (2021) found in their research that, the performance of proposed portfolio with some popular mutual funds that have rendered high returns over the years. (Presented in below Table) The absolute percentage return by our proposed portfolio was found to be 21.78.
it observes that proposed portfolio performs quite well during the global pandemic and gives much higher returns as compared to many in-demand mutual funds. However, if this model can sustain in this current global pandemic situation, it has a very high plausibility of sustaining when normalcy is restored. And a well-researched and scientifically generated portfolio is capable of surviving the global pandemic situation and provide better returns, even though the market is very sensitive. It is to be noted that the return could further be maximized by the expert investors if they sold certain shares in their peaks and bought the same at dips.
Conclusion:
Stock markets around the world experienced a massive collapse during the first wave of COVID 19. After its outbreak, the stock market came under fear as BSE Sensex and NSE Nifty fell by 38%. It leads to a 27.31% loss of the total stock market from the beginning of the year. Given the huge population and problematic circumstances of the economy, especially the financial sector and lockdown and social distancing have proven to be unsettling. the behavior of the stock market as well as that of the investors becomes very interesting and crucial in this highly volatile and vulnerable market trend Due to measures taken by the government to control the spread of COVID-19 such as lockdown and the stock market crash, individual investor’s willingness to invest in mutual funds and different sectors in stock market has been impacted negatively. And a sector-wise model and methodology is likely to be compatible with the global market as well since stock markets around the world behaved quite uniformly during this pandemic. So, during the tougher times, whenever there arises an uncontrollable scenario, the humankind will always try to safeguard itself.
References:
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Chaudhary, R., Bakhsh, P., & Gupta, H. (2020). The performance of the Indian stock market during COVID-19. Investment Management & Financial Innovations, 17(3), 133-147. doi:http://dx.doi.org/10.21511/imfi.17(3).2020.11
Himanshu, Ritika, Mushir, N., & Suryavanshi, R. (2021). Impact of COVID‐19 on portfolio allocation decisions of individual investors. Journal of Public Affairs, doi:http://dx.doi.org/10.1002/pa.2649
Khan, M., Aslam, F., & Ferreira, P. (2021). Extreme value theory and COVID-19 pandemic: Evidence from india. Economic Research Guardian, 11(1), 2-10. Retrieved from https://www.proquest.com/scholarly-journals/extreme-value-theory-covid-19-pandemic-evidence/docview/2573516554/se-2
Meher, B. K., Iqbal, T. H., Mathew, T. G., & Dum, D. Z. (2021). Measuring leverage effect of covid 19 on stock price volatility of energy companies using high frequency data. International Journal of Energy Economics and Policy, 11(6), 489-502. Retrieved from https://www.proquest.com/scholarly-journals/measuring-leverage-effect-covid-19-on-stock-price/docview/2610033352/se-2
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
Prabu, M. V., & Karthika, R. (2021). Impact of lockdown in the FMCG sector of the indian stock market – analysis using statistical methods. Turkish Journal of Computer and Mathematics Education, 12(1), 647-654. Retrieved from https://www.proquest.com/scholarly-journals/impact-lockdown-fmcg-sector-indian-stock-market/docview/2622805771/se-2
Shankar, R., & Dubey, P. (2021). Indian stock market during the COVID-19 pandemic: Vulnerable or resilient?: Sectoral analysis. Organizations and Markets in Emerging Economies, 12(1), 131-159. doi:http://dx.doi.org/10.15388/omee.2021.12.51
The impact of COVID-19 on the stock price of socially responsible enterprises: (2021). International Journal of Environmental Research and Public Health, 18(4), 1398. doi:http://dx.doi.org/10.3390/ijerph18041398
Varma, Y., Venkataramani, R., Kayal, P., & Maiti, M. (2021). Short-term impact of COVID-19 on indian stock market. Journal of Risk and Financial Management, 14(11), 558. doi:http://dx.doi.org/10.3390/jrfm14110558