Shri Vile Parle Kelavani Mandal’s

Narsee Monjee College of Commerce and Economics

(Autonomous)

ECONOMICS

TYBCOM

Semester –V

Stock markets and Pandemic: Following the highs and lows

Full name of Division Contact

SAP ID no.
submitting student roll no. number
Kirtika Nitin Dedhia 45208190131 B083 9987651985

Other member details:

Full name of other Division Contact

SAP ID no.
group members roll no. number
Aditi Damani 45208190120 B081 9082545211
Drishti Dhimant Dedhia 45208190130 B082 9821478912
Aayushi Desai 45208180907 B084 7069796530

Teacher In-charge: Nirmala Chavan and Sneha Pawar

1
Contents
INTRODUCTION ........................................................................................... 3
BEHAVIOUR OF STOCK MARKETS IN RESPONSE TO VARIOUS
SITUATIONS: ................................................................................................. 6
 Stock market in pre covid period and after introduction of news related to
vaccine............................................................................................................ 6
 Stock markets after the announcement of budget ...................................... 8
 Stock market during the second wave: .................................................... 10
 Stock market in the current time before the onset of the third wave ........ 12
DELINKED STOCKS AND GDP ................................................................ 13
CONCLUSION: ............................................................................................. 17
REFERENCES .............................................................................................. 19

2
INTRODUCTION

The stock and commodities markets are often akin

to volatilities, which are subjected either to some
rare economic conditions or natural phenomena .
A pandemic is, unfortunately, such a natural
phenomenon that creates absurd shocks in the
financial and economic conditions. The novel
coronavirus is also a rare example of such a kind
of pandemic, which started spreading at the start of
January 2020. In China, the first COVID-19 case
was reported on 3 January 2020, and on 30
January 2020, the World Health Organization
(WHO) issued its global alert. As the deadly disease started spreading around the world, on
30 March 2020, the World Health Organization declared it a pandemic. Initially, the World
Health Organization suggested social distancing and wearing a face mask as measures to curb
the spread of COVID-19; later on, due to a sudden rise in the number of cases in India and
the world, most of the countries started enforcing complete lockdown. The prolonged and
stringent lockdown affected both the social and economic conditions of individuals as well as
the economic sustainability of countries. Previous studies suggested that unexpected events
like terrorist attacks and SARS pandemics have severe impacts on the economic and financial
conditions of individuals. Such events create a sense of fear and panic in the mind of
individuals, apart from distorting the demand for goods, money supply, and labour
movements.

The United States stock market witnessed a circuit breaker four times in ten days in March
due to the uncertainties caused by the drastic spread of coronavirus, and along with the U.S.
stock market, Asian and European stock markets also noticed a sudden plunge. Due to the
COVID-19 outbreak, similar to the stock market performance, the commodity markets also
showed abrupt movement. The prices of oil recorded a negative price in April for the first
time in history due to low demand from the world market, and similarly, gold prices also
showed abrupt movements, from the lowest prices in March to the highest prices in May
2020. The previous studies suggest that investors consider accounting information as the
benchmark for making their investment decisions in capital and commodity markets. The
release of new accounting information helps in analyzing the market reaction. However,

3
sometimes due to unforeseen situations like pandemics and natural calamities, accounting
information becomes redundant in gauging the market reactions.

In India, the first COVID-19 case was found in Kerala in January 2020, but safety measures
were introduced from March 2020 onwards after the World Health Organization declared it
as a global pandemic. By the time of completing this study (16 April 2021), India has
confirmed COVID-19 cases of 14,526,609, where out of these active cases, there are
1,679,121, and total deaths are 175,673, as per the data released by the Ministry of Health
and Family Welfare, Government of India. Recently, India was witnessing the second wave
of coronavirus infection, which is more severe due to the high death rate compared to the first
one. The first wave of the COVID-19 spread in India was subdued during the first week of
November 2020. Since March 2020, the Indian government has implemented lockdowns in
five stages, under which the first three were stringent and complete lockdowns, whereas the
remaining two lockdowns were more unlocking in nature. These lockdowns have
significantly affected the economic fundamentals of the Indian economy, which is one of the
fastest emerging economies of South Asia.

Due to the large population and weak healthcare infrastructure, the impact of the pandemic
on Stock Market is one of the hot topics. To achieve the goal of the assignment, we have
divided the project into 4 parts. The first part focuses on stock market during the pre covid
period. The second part focusses on investigating the impact of COVID- 19 on the Indian
stock and commodity market by taking three timelines. The timeline evaluates the
relationship by comparing the impact during the first wave and second wave of coronavirus
and when the vaccines were introduced. The third part of the study focuses on analyzing the
impact of COVID-19 spread on the stock market performance of India when the budget was
announced in February 2021. The fourth part of the study is based on the current situation i.e.
the third wave of coronavirus and its impact on the stock market.

The financial market of India is witnessed sharp volatility as a result of the disruption of the
global market. As a result of the fall out in the global financial market, the Indian stock
market also witnesses sharp volatility. It has also borne the brunt of the COVID‐19 pandemic.

There are two major stock indices in India—Bombay Stock Exchange (BSE), Sensex, and
National Stock Exchange (NSE), Nifty. If we look at the Bombay Stock Exchange there is a
drop in the Sensex index to 13.2% on March 23, 2020. It was the highest single they fall after
the news of the Harshad Mehta Scam, April 28, 199. Similarly, Nifty has also declined to
almost 29% during this period. Some economists have considered the impact of COVID‐19
on the Indian stock market as a “black swan event,” that is, the occurrence of a highly
4
unanticipated event with an extremely bad impact. Due to the lockdown policy adopted by
the government, the factories have reduced the size of their labor force as well as production
level which disrupted the supply chain. Again, because of the uncertainty prevailing among
mankind, people also reduce their consumption habits leading to demand‐side shock. Studies
have also found that the entire previous pandemic had affected only the demand chain. But
this COVID‐19 pandemic has affected both the demand chain and supply chain.

India's economy had shrunk by almost one-fourth. Some economists even say that the
shrinkage could be near one-third if damage borne by the informal sector was measurably
known. The economy has seen its worst fall in decades during the June-quarter, and there is
no sign of positive growth in the second quarter of 2020.
The governments, both the Centre and of the states, have lost their earnings. The two are
fighting over Goods and Services Tax (GST) compensation. GST collection has been
dismal primarily due to the coronavirus lockdown.
The security situation was challenged by the Chinese needling along the northern border
and the Line of Actual Control (LAC) in Ladakh. India had turned into the global hotspot of
the coronavirus pandemic.
Unemployment had shot up since the coronavirus lockdown was imposed. Factories have had
reported a loss of production. After a brief increase in MNREGA employment figures,
reports suggest dip in rural jobs.
Still, the stock markets in India have been on another planet since the beginning of the
coronavirus lockdown. The disconnect between Sensex and the state of economy has been so
glaring that RBI Governor Shaktikanta Das, in a TV interview said,

"There is a disconnect [at stock markets] with the real economy."

5
 Despite the several literatures on the impact of COVID‐19 on the stock market of the entire
economy, there is limited study on it especially in the case of an emerging economy. To shed
light on this aspect, this paper attempts to investigate the impact of COVID‐19 on the two
important stock market of India.

BEHAVIOUR OF STOCK MARKETS IN RESPONSE TO

VARIOUS SITUATIONS:

 Stock market in pre covid period and after introduction of news

related to vaccine

Pre COVID-19, market capitalisation on each major exchange in India was about $2.16
trillion. The 2019 stock market rally was limited to 8-10 stocks within the large caps. The
Sensex returned around 14% (excluding dividends) for the year 2019 but prominently
featured blue-chip companies such as HDFC Bank, HDFC, TCS, Infosys, Reliance,
Hindustan Unilever, ICICI Bank and Kotak Bank, without which Sensex returns would have
been negative. However, in the start of 2020, there was overall recovery which led to both
NSE and BSE traded at their highest levels ever, hitting peaks of 12,362 and 42,273
respectively. At the beginning of the year, there were close to 30 companies that were
expected to file IPO’s. The market conditions were generally favourable as they witnessed
record highs in mid-January.

A Comparison of Pre and Post COVID View of Indian Stock Markets

Bourses Indexes-14 Jan 20 Indexes-23 Mar 20 Indexes-24 Apr 20

12,362 7,610 9,154
Nifty 50
41,952 25,981 31,327
Sensex

Ever since COVID 19 strike, markets loom under fear as uncertainty prevails. lt has sent
markets around the world crashing to levels not witnessed since the Global Financial Crisis of
2008. Following the strong correlation with the trends and indices of the global market as
BSE Sensex and Nifty 50 fell by 38 per cent. The total market cap lost a staggering 27.31%
from the start of the year. The stock market has reflected the sentiments this pandemic
unleashed upon investors, foreign and domestic alike. Companies have scaled back; layoffs
have multiplied and employee compensations have been affected resulting in negligible
growth in the last couple of months. Certain sector such as hospitality, tourism and
6
entertainment have been impacted adversely and stocks of such companies have plummeted
by more than 40%.Of the 13 times when Sensex lost 2.5 per cent or more in 2020, seven
came in the month of March

While the world has witnessed many financial crises in the past, the last one being the global
recession of 2008, the current coronavirus crisis is different from the past fallouts.

In response to turmoil, RBI and the Government of India has come up with a slew of reforms
such as reductions of repo rate, regulatory relaxation by extending moratorium and several
measures to boost liquidity in the system howsoever the pandemic has impacted the premise
of the corporate sector. Payments deferrals, subdued loan growth, rising cases of bad loans
and sluggish business conditions have impaired the growth and the health of the economic
activity. Deceleration of GDP growth, demand-supply chain, cut in discretionary expenses
and CAPEX has been the observed during the lockdown, which has led to falling in
household incomes, marketing spends, reduced travel cost and hiring freeze.

Companies with innovative products, increasing distribution reach, technology-driven

processes and healthy balance sheet would revive the growth momentum post lockdown.
Lower oil prices and high capital expenditure by the government in turn creating capital
which will provide a platform to flourish when we overcome COVID 19 pandemic.

As for the outlook for the market, we only need to look back at its history. Drops in BSE
sensitive index is temporary, and each dip provides investors with the opportunity to enter the
market and earn a higher return especially for those with long term horizon. Moreover, the
higher the fluctuations, the higher chances of getting better returns. While these crises are real
and it impacts the world economy, but historically, such crisis has not lasted long, as the
world is competent enough to come up with answers to combat these challenges. Despite the
fact that it’s hard to predict the magnitude and impact of Coronavirus on the economy, but it
is certain that the markets will bounce back soon the crisis gets over. With an average annual
return (CAGR) of around 15 per cent, by growing from 100 points in 1979 to over 41,000
points in 2019, Sensex has proven time and again that corrections are temporary, but growth
is permanent.

While enough has been written about the increase volatility in the markets, below is some
analysis on the daily movement of BSE Sensex for past 10 years. The analysis is based on the
number of days the index gained or lost 1 per cent or more. This clearly shows how 2020
stands as an outlier when compared to 2011-2019, with approximately six months to go from

7
here. 2020 stands tall among all these years with roughly having a 1 per cent or more
gain/loss every second trading day.

Also during this Covid 1ST wave period there were many vaccine related news in market
which positively impacted many stocks in the market-

1. Pfizer had applied for emergency use authorisation of its coronavirus vaccine in
India,which lead to tremendous demand for its stock and correspondingly higher prices.

2. Following suit, the Serum Institute of India (SII) and Hyderabad-based Bharat Biotech
also applied to the Drugs Controller General of India (DCGI) for emergency use
authorisation of its COVID-19 vaccine, Covaxin, PTI reported.

3. The pharma sector had undergone consolidation over the past two months after
relatively outperforming the benchmark during March–September.

4. During September, the pharma index was on the cusp of rebounding out of the ongoing
consolidation, indicating impeding acceleration of upward momentum.

5. The temperature sensitivity to maintain the efficacy of a vaccine calls for reliable, fast,
and secure logistics partners who understand the importance of cold chains.“ Logistics
companies and airlines are the key stakeholders in ensuring that the COVID-19 vaccine
can get from one place to another and has the required capability, and “Due to the
shortage of cold chain logistics companies in India, companies like SpiceJet, Snowman
Logistics and Blue Dart Express also stood a benefit from this play

 Stock markets after the announcement of budget

The Union Budget influences the economy, the interest rate and the stock markets. The ways
in which the Finance Minister spends and invests money impacts the Fiscal Deficit. The
8
extent of the deficit and the means of financing it influence the money supply and the interest
rate in the economy. High interest rates mean higher cost of capital for the industry, lower
profits and hence lower stock prices and vice versa. On 1st February, 2021 Finance Minister
Nirmala Sitharaman announced a balanced and growth oriented budget. The Sensex soared
2,300 points, or five per cent, to 48,600.61 and Nifty soared by 646.60 points, or 4.74 per
cent, at 14,281.20. This has been the best performance by the stock market on a Budget Day
since 1999. Let’s understand sector wise impact of the various policies in the budget on the
stock market.

Health Care

An outlay of Rs. 2,23,846 crore was proposed for health and well-being for 2021-22. This
records a total increase of 137% in healthcare industry. Also 35,000 crores have been
assigned for Covid-19 vaccines. Several new schemes like PM Atma Nirbhar Swasthya
Bharat Yojana, Mission Poshan 2.0, Urban Swachh Bharat Mission, National Health
mission have been implemented.

The indices of Nifty Pharma went down by 0.55% but the BSE Healthcare went up by
0.26%. As a result of this Pharma Companies like Sun Pharmaceuticals, Divi’s Labs,
Aurobindo Pharma gained market cap while others like Dr Reddy’s Labs, Cipla were
laggards loosing market cap.

Banking Finance Service and Insurance (BFSI)

An asset reconstruction company Ltd, will be set up which will serve as an asset
management company, to consolidate and take over all the present stressed assets and debt.
This will ultimately be disposed to alternate investment funds and any other prospective
investor for value receivable. The budget declared an additional recapitalisation of banks to
the tune of Rs 20,000 crores.

The BFSI was the top gainers where BSE Bankex went up by 8.33%, BSE finance was up by
7.49%, Nifty Bank up was up by 8.26%, Nifty Finance was up by 7.6%, Nifty PSU banks
was up by 7.38%. Banks like HDFC bank, ICICI bank, Kotak Mahindra bank, SBI, Axis
bank and Indusind bank were the top market cap gainers. Finance Companies like HDFC,
Bajaj Finserv, Bajaj Finance, HDFC AMC, SBI Cards and Payments were the top financial
companies to gain market cap. Insurance Companies like HDFC life insurance, SBI life
insurance, ICICI Prudential life insurance company, ICICI Lombard general Insurance were
the top market cap acquirers.

9
Infrastructure

The government has decided a spending of Rs 5.54 lakh crores. A skilfully managed
Development Financial Institution (DFI) for infrastructure financing shall be set up and a sum
of Rs 20,000 crores is being provided to set up this institution. A lending target of 5 lakh
crores has been set for this institution in the next 3 years. Thus, indices of Nifty Infra went up
by 4.94%, BSE Infra went up 5.56%, Nifty Energy were up by 2.65%, BSE Energy were up
2.57%. Infrastructure stocks like Larsen & Turbo, Adani Ports, GMR infrastructure, Rites,
Dilip Buildcons were the top market cap acquirers.

Real Estate

The additional interest deduction of Rs 1.5 lakh to purchase reasonably priced housing has
been prolonged an additional year. This is over and above the Rs 2 lakh deduction available
on the interest payment on housing loan. Thus the index of BSE Realty was up by 6.65% and
Nifty Realty was up by 6.31%.

Steel

Certain customs duty on steel will be decreased to 7.5% on semi, flat and long products of
non-alloy, alloy and stainless steel. Duty on steel scrap will be exempt till March 2022. Thus
SAIL, Hindalco, Tata Steel, Jindal Steel were the top shares.

Other Important policies:

 No significant changes in wealth tax, covid cess, direct tax and indirect tax.
 Tax audit limit augmented to Rs 10 crores from Rs 5 crores.
 A new world-class fintech hub in GIFT city
 Apportionment Rs 1,500 crores for endorsing digital payments
 A new reconciliation instrument for swift resolution of contractual arguments with
Government/CPSES

 Stock market during the second wave:

Despite the knee-jerking reaction of the stock market during the first wave, the markets were
touching a lifetime high amid the deadly second COVID-19 wave
which was at its peak during May, 2021. While globally this was
supported by unprecedented fiscal support and monetary easing that
protected many of the developed economies from collapsing, in

10
India, despite moderate support, the markets simply rode the global liquidity wave.

The corporate sector stood to face the heat more from demand than the supply side. With
rising medical expenses and fresh fears of a slowdown leading to job losses, discretionary
consumption was at the receiving end. The loss of productivity and localized restrictions
threatened supply chains and fuelled inflationary pressure. To make matters worse, unlike the
past year, when commodity prices were benign at the onset of the pandemic due to
widespread fears of a global slowdown, commodity prices were soaring, riding on the
optimism of a return to growth in many developed markets and the roll out of mass
vaccination. Hence, for India-centric companies, in addition to slow top line performance,
gross margin and operating margins were getting squeezed. As the markets swung from
despondency to euphoria, investors didn’t want to miss a recovery rally and thus stay put in
the market in hopes of returns. So while Indian equities decoupled for a few weeks of March
and April in 2021, the losses have been recouped.

Better balance sheet quality and exceptional cost management have helped have helped the
big companies to make a recovery thus, gaining disproportionate market share. Thanks to the
global exposure of most Nifty constituents like technology, pandemic-proof pharma,
commodity rally driven metals or well-run banks with adequate capital and buffer provisions,
the second wave is unlikely to make a big dent to earnings. Rural facing businesses and
bottom of the pyramid lenders faced some challenges, but they were perceived as short-term
in nature

Equity have been an outperforming asset class going by the Nifty return with a CAGR
(compounded annual growth rate) return of close to 11.2 per cent in the past fifteen years,
although earnings have lagged the price performance, with Nifty earnings were growing at a
CAGR of only 6.7 per cent over this period. In fact, it has been a tale of two halves that has
an important bearing on market return, going forward as well.

In the first phase, true to the saying that markets are slaves of
earnings, the annualised Nifty return over an eight year period of
2006-2013 at 10.5 per cent closely tracked the annualised
earnings growth of 10.4 per cent. However, this strong
correlation was completely broken in the second phase i.e. from
2014 to 2020, when the annualised earnings growth of 2.6 per
cent had been way behind annualised Nifty return of 12 per cent.
Several structural factors have contributed to a rally sans
earnings.
11
Demonetisation had been an important contributor in encouraging savings. The young
population with no old age security in India have been a strong contributor to equity flows as
most young professionals swear by SIP (Systematic Investment Plans). The assets under
management of equity Mutual Funds have risen to a staggering Rs 10 lakh crore at the end of
FY21 from Rs 1.65 lakh crore in FY14 – more than six- fold rise in seven years. The
pandemic has further bolstered the so called “equity cult” amongst retail investors with the
past year seeing the opening of 1.43 crore demat accounts as against 50 lakhs in the
preceding year. Paltry return in alternate asset classes like real estate in recent times and
record low interest rates have also been extremely supportive of money flowing to equities.

A recent study of RBI analysing equity return data of 15 years suggest liquidity support to
have a greater bearing on equity prices compared to economic prospects. While the surge in
FPI (foreign portfolio investment) flows has been the icing on the cake post pandemic,
domestic liquidity has also provided solid support to equities.

So investors in Indian equities may have to live with optical overvaluation and not shun the
markets for the same. The current valuation is close to a historic peak, but could look
reasonable from an FY23 perspective, should earnings recover meaningfully.

 Stock market in the current time before the onset of the third wave
On 16th September, 2021, BSE Sensex jumped 418 points to end at 59,141. Nifty 50 index
ended at 17,629.50, rising 110.5 points or 0.63 per cent. IndusInd Bank and ITC shares were
top performers, gaining 7 per cent each, followed by State Bank of India (SBI), Reliance
Industries Ltd (RIL), Kotak Mahindra Bank, ICICI Bank, Axis Bank, Bajaj-Auto, HDFC
Bank. On the flip side, TCS stock fell the most. Stocks such as Tech Mahindra, Tata
Steel, Bharti Airtel, HCL Tech, Dr Reddy’s Lab, Infosys, Titan Company were top Sensex
losers. Sectorally, the Nifty PSU Bank index rallied 5.43 per cent ahead of Finance Minister
Nirmala Sitharaman’s press briefing.

12
After the second Covid wave and concerns over its fallout on the economy kept market
sentiments under check over the last few months, a decline in cases over the last month, a
pickup in vaccination pace and economic activity, and better than expected earnings growth
by India in the quarter ended June 2021 has helped improve market sentiments. Another
factor that has helped the markets rise has been the participation of foreign portfolio
investors. In July, while they had invested a net of only Rs 4,600 crore into Indian equities,
they had pulled out a net of Rs 11,300. While liquidity is strong, the continuing low interest
rate environment, which is likely to stay for some time, is also helping the rise.

While there is huge liquidity in the market, which is flowing both into the secondary market
and even into the primary market (into the large number of IPOs that are hitting the market),
there is optimism around a revival of earnings growth following a strong performance by
India in September. There is also a sense that since the government did not impose a
complete shutdown following the second wave of Covid, it is unlikely that there will be a
shutdown if there is a third wave either. Thus, market participants believe that the economic
activity will not be derailed. Some feel that since big lessons have been learnt from the
second wave, India is much better prepared to handle a third wave, mortality will be lower as
many more people have been vaccinated now.

DELINKED STOCKS AND GDP

When the global economy is sinking due to the pandemic shutdown stock markets (capital
markets) are booming; allowing those at the top of the economic pyramid make wealth when
billions of people are losing theirs. The World Bank said in its 'Global Economic Prospects'
report of June 2020 that the world economy was facing its worst recession since World War
II and that the growth was expected to shrink (negative) by 5.2% in 2021. It also pointed out
that "the largest fraction of economies experiencing declines in per capita output since 1870".

Did the delinking happen now?

The Indian stock markets had discounted massive economic shocks of demonetisation and
GST that derailed the economy in 2017, and bank failures (PMC, Yes Bank), NBFC crisis
(IL&FS, DHFL) and growing NPAs in the subsequent years that prevented the economy from
bouncing back.

The upward trend in the stock markets continues amidst the trade war against China. In the
middle of rising clamour to boycott Chinese goods, imports from China it was objected to
saying that this will harm local businesses that have already paid for these goods.

13
It may impact production of key COVID-19 drugs remdesivir and favipiravir and other life-
saving drugs in India as India imports two-thirds of its active pharmaceutical ingredients
(APIs) and formulations from China.

The delinking of stock markets happened in recent times (2015). But this delink was evident
during the massive market crash of 2008 and earlier in 2000-01 when the dotcom burst
happened.

Globally, this break down has been evident since the 1929 Great Depression.

That is nearly a hundred years of historical evidence. It needs no elaboration that stock
market bubbles build up when the link with real economy is broken. Valuation of stocks
reaches irrational highs, leading to an eventual crash.

Reason for the market boom

Liquidity infusion:-

 In the US, the Federal Reserve has not only reduced interest rate to near 0.25% to
create more liquidity but also decided, as part of its stimulus, to buy corporate bonds
from open market.

 In India, it happens even without massive crashes of the 2007-08 proportion. It is no

secret that every time market falls sharply, the government instructs public sector
undertakings like the LIC and SBI to step in quickly, buy stocks and boost "market
sentiment".

Lure of gambling:-

 Lowering the interest rate to near zero in the US further incentivises people to borrow
money virtually free of cost to invest in stock markets. This is one reason why the US
stock market has made a swift recovery. With the Federal Reserve watching their
back, it is fun to bet in the stock market. Stock traders know the Fed will protect the
long-term profitability of big corporations with taxpayers' money.

 In India, the RBI has been reducing headline interest rates. Though it has not reached
near zero yet (repo rate is 4%), it has generated additional liquidity of Rs 8.1 lakh
crores. Most of it is being parked in the RBI's own reverse repo account, reflecting the
futility of liquidity infusion.

The stock market is setting records during A Pandemic

1. Stock markets are forward-looking:-

14
Investors look toward future earnings to determine stock prices. It’s all about income, growth,
and potential.

Many investors are also hopeful for a viable coronavirus vaccine, which would hopefully put
an end to social distancing requirements and help improve parts of the economy that are
currently hurting the most (travel, dining, hospitality, events, and in-person entertainment).

2. Stock market is one of the best current options for Investors:-

Interest rates have plummeted, with most bank accounts, CDs, and government bonds paying
much less than 1% interest. Many investors who are searching for yield have turned to the
stock market and dividends as a way to generate a return on their investment.

3. Consumers Have Shifted Their Spending:-

The coronavirus pandemic hasn’t had a negative financial impact on everyone. But it has
shifted how people are spending their money.

A prime example is spending that would have been earmarked for summer vacations. Fewer
people are traveling, staying at hotels, or eating out at restaurants. But that doesn’t mean they
aren’t spending money elsewhere. Instead of spending money on airline tickets, hotels, and
restaurants, they may be shopping online or spending more money on hobbies or home
improvements.

And some of that money may have ended up in the stock market, further pushing up stock
prices.

Why stock market is rising amid uncertain economic outlook?

Aware by the spread of COVID-19, by February 2020 it was clear that the problem was huge
and spreading fast all over the globe. Various countries started lockdowns of different
magnitudes and the economic activity paused.
For the June quarter GDP growth was sharply negative. It ranged from -10% in developed
economies to -24% for India! It looked like the world would go into a state of economic
depression, even worse than that in 2008.
From the past experiences, central banks and governments of the developed economies
unleashed a series of fiscal and monetary stimulus measures unlike and much greater in scale
compared to anything that the world had ever seen.
The US Federal Reserve, European Central Bank, Bank of Japan and most other countries cut
rates, bought assets (equities, debt) to support the financial markets, offered lines of credit
and flooded the world with monetary liquidity.
15
Governments in these countries put money directly in the hands of the people, subsidized
payrolls of companies and offered tax cuts. Given the size and scale of these measures, they
succeeded, and many economies saw a V-shaped recovery in the quarter ending September
2020.
Global central banks and Governments have made it amply clear that they will use all means
to keep markets stable and support growth. In the US both the leading parties are supportive
of a second fiscal stimulus package.
 The first factor is to understand the markets is the flood of global liquidity and low-
interest rates will continue for a long time and asset markets continue to be supported
by such measures. Easy money fuels risk-appetite and thus the record-high retail
investor participation in the markets globally and also to see continuous global money
flows to emerging markets like India. In India too, the RBI and Government’s
objective of kick-starting growth is more important than inflation control at this point.
 The second factor is liquidity in the system is ample, interest rates have been cut and
the impact of these measures is in the form of lower lending rates. The fiscal deficit
may also be allowed to run at high levels for a year or so. It means that Indian
consumers and corporates will benefit from low-interest rates for quite some time.
This has multiple implications. Lower rates can lead to demand stimulation as
consumers and borrowers can buy bigger or more with the same EMI. For corporates,
it means improved bottom-line as interest costs reduce and also increased capacity to
borrow for future growth.
 The third factor is that the Indian Government has begun to implement far-reaching
fiscal and policy steps to keep investor sentiment positive viz. reduced tax for new
investments, production-linked incentives for more than 10 identified sectors (Make-
In-India), support for medium and small enterprises, privatization of key PSUs and
continued support to the rural economy, indigenization of defence production, labour
reforms and farm sector reforms.

Equity valuations also have a link with interest rates. Lower the rates, higher the valuations.
The potent combination of the three factors discussed earlier can keep sentiment buoyant and
allow markets to ignore sluggish corporate results and valuations for a few quarters.
Moreover, while valuations do look expensive on certain parameters, they are justifiable on
certain others. Overall, they indicate that the market expects a smart recovery after negative
growth in FY21.

16
While it appears that there is disconnection between the economy and markets, it is just the
difference between the current reality and expected future. If growth materializes as expected,
we will continue to see the markets do well and the economy catching up.
A significant risk is that we are seeing a second/third COVID-19 wave in Europe/US. A
move towards extended lockdowns may derail the nascent economic recovery. In India too,
we have seen a second wave in certain States which had earlier done very well to contain the
first wave.
Moreover, India has had a very limited fiscal stimulus so far (less than 2% of GDP). Thus the
sales pickup seen recently may be due to pent-up demand and it needs to be seen if it
continues beyond the festive season. With employment levels still below pre-COVID levels
and many businesses shut permanently, especially in the services sectors, demand may not
bounce back fast without further fiscal measures. Another key area is financial sector stress
which remains an area of concern while recent commentary on asset quality has been
incrementally better than feared.
If these persist and expected growth does not come through, positive market sentiment will
fade. Then there may not be disconnection between markets and economy.

CONCLUSION:

The COVID-19 pandemic had negatively impacted the stock market where Nifty saw a decline
approximately by 29% and the Bombay Sensex went down by 13.2%. However, during the
second wave the market reaction was surprisingly muted. There are many factors that could have
led to such a sharp reaction during the first wave. Layoffs, company closures, and production
have harmed the profitability of most sectors of the economy, including travel and tourism,
real estate, and aviation, among others. Low profitability and insufficient demand, combined
with the uncertainty caused by the pandemic, resulted in herb sales, causing a sharp drop in
the stock market during the early stages of lockdown and the first wave of COVID-19
infection. However, as people became more aware of the virus and began to adapt, the stock
market became more stable with each passing day, despite the increase in cases. The
government measures that reduce the impact of a pandemic such as COVID-19 had a positive
effect on stock returns, and this is particularly evident in the case of a second wave. Indian
stock market responded positively during the second wave due to the impact of fiscal
stimulus and positive investor sentiments.

17
The budget of 2021 had led to the best ever positive trend since 1999. Many government policies
especially in the fields of health, infrastructure, banking finance service and insurance, real estate,
steel has arose a positive sentiment in the investors. The budget was balanced and growth
oriented also there were no significant fluctuations in the wealth tax or direct and indirect tax
which could have arose a pessimistic sentiment. During the second wave of COVID-19 despite
the economic despondencies the stock markets were hitting all time high. A reason which could
have attributed to this positive trend could be the reduction in cases and the mass vaccination
drive. There were lesser restrictions imposed by the government with respect to the lockdown.
The big companies recovered well by adopting efficient cost management techniques and while
the small scale firms faced challenges they were short term in nature. The domestic liquidity is
high due to an upsurge in the foreign portfolio investment. As a result of the current scenario the
market sentiment is optimistic that economic activities wouldn’t derail even if the third wave hits
India.

An unusual phenomenon has been observed during the second wave of covid-19. The global
economy was sinking yet those at the top of the pyramid were earnings billions and others
were losing wealth. Thus, there is a delinking between the economy and the stock market.
One factor which caused this phenomenon is the liquidity infusion. Whenever the market
sentiment is pessimistic public undertakings like LIC and SBI to buy quickly buy stocks and
boost market sentiment. The RBI has been reducing its interest rates, which has generated
additional liquidity of Rs 8.1 lakh crore. During this financial year, foreign institutional
investors have net invested a total of Rs 83,682 crore into Indian stocks, after slacking off on
India over the last few years. The stock market rally is clearly an impact of the easy money
policies being run in much of the West. Further, the participation of retail investors in the
stock market has increased this year. Between December 2019 and June 2020, the number of
demat accounts rose by 3.9 million to 43.2 million accounts, a 10% rise. In fact, just between
end-March, after a total lockdown was introduced to tackle Covid-19, and June, 2.4 million
new demat accounts were opened.

Learning and recommendation

 Once global recovery is on a firm footing, inflation, which is already lurking, might rear
its ugly head beyond the comfort of developed countries’ central banks, forcing policy
makers to unwind liquidity support, thus punctuating the global equity rally. However, for

18
 Indian equities, the long-term structural liquidity support is hard to ignore and any
correction will therefore be short-lived.
 Unlike FY21 where a tide of liquidity lifted all boats, FY22 is likely to be a stock picker’s
market with different businesses showing varying degree of resilience to the pandemic
after weathering it for a reasonably long period. Investors, therefore, have to be
discerning and follow well researched advice on stock selection. Any pull back is an
opportunity to buy into long-term winners from the technology sector, well capitalised
large financials, companies benefitting from global sourcing away from China, promising
healthcare/pharmaceuticals, consumer companies gaining from the shift to organised
plays, “Make in India” beneficiaries and select infrastructure plays with strong balance
sheets.
 Adequate fiscal stimulus is to be provided by the governments to the central banks to
help in increasing the money supply and reviving the sluggish demand. Appropriate
refinancing schemes, liquidity supports, relaxed debt payment structuring, and
regulatory forbearance are required to encourage small, medium scale, retail, and
informal industries. Acquiring support from international multilateral banks for their
overburdened and highly reliant healthcare systems is also helpful.

REFERENCES

 Madhuchanda Dey, 1st June 2021, Rising stocks, deadly second wave: What’s
happening?, https://www.moneycontrol.com/news/business/moneycontrol-
research/rising-stocks-deadly-second-wave-whats-happening-6962471.html, India
 Sandeep Singh, 7th August, 2021, Explained: Equity markets rising, where should you
invest? https://indianexpress.com/article/explained/equity-markets-rising-where-
should-you-invest-7440510/, New Delhi, India.
 Prassana Mohantay, 1st june, Rebooting Economy I: Why stock market is booming
when COVID-19-hit economy sinks https://www.businesstoday.in/latest/economy-
politics/story/indian-economy-economic-growth-stock-market-investors-equities-
covid19-pandemic-coronavirus-262766-2020-07-01, India
 Ryan Gunia, 19th August, 2021, 5 Reasons The Stock Market Is Setting Records
During A Pandemic https://www.forbes.com/sites/ryanguina/2020/08/19/5-reasons-
the-stock-market-is-setting-records-during-a-pandemic/?sh=79ef20394d76, Europe

19
 Mihir Vora, 23rd November, 2020, Why stock market is rising amid uncertain
economic outlook: Understanding market-economy disconnect,
https://www.financialexpress.com/market/cafeinvest/why-stock-market-is-rising-
amid-uncertain-economic-outlook-understanding-market-economy-
disconnect/2134447/, India
 2, D. B. 1. a. D. B., feb, 2021 NCBI ARTICLE. The outbreak of COVID‐19
pandemic and its impact on stock market volatility: Evidence from a worst‐affected
economy. ncbi.
 DUTTA, P. K., 2020. Robinhood investors: Why shrinking economy has expanding
Sensex | Explained. INDIA TODAY.
 Farhan Ahmed 1, *. ,. A. A. S. 2., 2021. Assessing the Impact of COVID-19 Pandemic
on STOCK MARKET, s.l.: s.n.
 Team Grow, 3rd February, 2021, Budget 2021 Market Impact: Health, Infra, Banking,
Steel & More, https://groww.in/blog/budget-impact-on-market, India

20
 PLAGIARISM SCAN REPORT
Report Generation Date:

Words:
Characters:
Excluded URL :

2%
Plagiarism

98%
Unique

2
Plagiarized Sentences

71
Unique Sentences

Content Checked for Plagiarism

Introduction
The stock and commodities markets are often akin to volatilities, which are subjected either
to some rare economic conditions or natural phenomena . A pandemic is, unfortunately,
such a natural phenomenon that creates absurd shocks in the financial and economic
conditions. The novel coronavirus is also a rare example of such a kind of pandemic, which
started spreading at the start of January 2020. In China, the first COVID-19 case was
reported on 3 January 2020, and on 30 January 2020, the World Health Organization (WHO)
issued its global alert. As the deadly disease started spreading around the world, on 30
March 2020, the World Health Organization declared it a pandemic. Initially, the World
Health Organization suggested social distancing and wearing a face mask as measures to
curb the spread of COVID-19; later on, due to a sudden rise in the number of cases in India
and the world, most of the countries started enforcing complete lockdown. The prolonged
and stringent lockdown affected both the social and economic conditions of individuals as
well as the economic sustainability of countries. Previous studies suggested that
unexpected events like terrorist attacks and SARS pandemics have severe impacts on the
economic and financial conditions of individuals.
Such events create a sense of fear and panic in the mind of individuals, apart from
distorting the demand for goods, money supply, and labour movements.
The United States stock market witnessed a circuit breaker four times in ten days in
March due to the uncertainties caused by the drastic spread of coronavirus, and
along with the U.S. stock market, Asian and European stock markets also noticed a
sudden plunge. Due to the COVID-19 outbreak, similar to the stock market
performance, the commodity markets also showed abrupt movement. The prices of
oil recorded a negative price in April for the first time in history due to low demand
from the world market, and similarly, gold prices also showed abrupt movements,
from the lowest prices in March to the highest prices in May 2020. The previous
studies suggest that investors consider accounting information as the benchmark
for making their investment decisions in capital and commodity markets. The
release of new accounting information helps in analyzing the market
reaction. However, sometimes due to unforeseen situations like pandemics and
natural calamities, accounting information becomes redundant in gauging the
market reactions.
In India, the first COVID-19 case was found in Kerala in January 2020, but safety
measures were introduced from March 2020 onwards after the World Health
Organization declared it as a global pandemic. By the time of completing this study
(16 April 2021), India has confirmed COVID-19 cases of 14,526,609, where out of
these active cases, there are 1,679,121, and total deaths are 175,673, as per the
data released by the Ministry of Health and Family Welfare, Government of
India. Recently, India was witnessing the second wave of coronavirus infection,
which is more severe due to the high death rate compared to the first one. The first
wave of the COVID-19 spread in India was subdued during the first week of
November 2020. Since March 2020, the Indian government has implemented
lockdowns in five stages, under which the first three were stringent and complete
lockdowns, whereas the remaining two lockdowns were more unlocking in
nature. These lockdowns have significantly affected the economic fundamentals of
the Indian economy, which is one of the fastest emerging economies of South Asia.
Due to the large population and weak healthcare infrastructure, the impact of the
pandemic on Stock Market is one of the hot topics. To achieve the goal of the
assignment, we have divided the project into 4 parts. The first part focuses on stock
market during the pre covid period. The second part focusses on investigating the
impact of COVID- 19 on the Indian stock and commodity market by taking three
timelines. The timeline evaluates the relationship by comparing the impact during
the first wave and second wave of coronavirus and when the vaccines were
introduced. The third part of the study focuses on analyzing the impact of COVID-
19 spread on the stock market performance of India when the budget was
announced in February 2021. The fourth part of the study is based on the current
situation i.e. the third wave of coronavirus and its impact on the stock market.
The financial market of India is witnessed sharp volatility as a result of the
disruption of the global market. As a result of the fall out in the global financial
market, the Indian stock market also witnesses sharp volatility. It has also borne the
brunt of the COVID‐19 pandemic.
There are two major stock indices in India—Bombay Stock Exchange (BSE), Sensex,
and National Stock Exchange (NSE), Nifty. If we look at the Bombay Stock Exchange
there is a drop in the Sensex index to 13.2% on March 23, 2020. It was the highest
single they fall after the news of the Harshad Mehta Scam, April 28, 199. Similarly,
Nifty has also declined to almost 29% during this period. Some economists have
considered the impact of COVID‐19 on the Indian stock market as a “black swan
event,” that is, the occurrence of a highly unanticipated event with an extremely bad
impact. Due to the lockdown policy adopted by the government, the factories have
reduced the size of their labor force as well as production level which disrupted the
supply chain. Again, because of the uncertainty prevailing among mankind, people
also reduce their consumption habits leading to demand‐side shock. Studies have
also found that the entire previous pandemic had affected only the demand
chain. But this COVID‐19 pandemic has affected both the demand chain and supply
chain.
India's economy had shrunk by almost one-fourth. Some economists even say that
the shrinkage could be near one-third if damage borne by the informal sector was
measurably known. The economy has seen its worst fall in decades during the June-
quarter, and there is no sign of positive growth in the second quarter of 2020.
The governments, both the Centre and of the states, have lost their earnings. The
two are fighting over Goods and Services Tax (GST) compensation. GST collection
has been dismal primarily due to the coronavirus lockdown.
The security situation was challenged by the Chinese needling along the northern
border and the Line of Actual Control (LAC) in Ladakh. India had turned into the
global hotspot of the coronavirus pandemic.
Unemployment had shot up since the coronavirus lockdown was imposed. Factories
have had reported a loss of production. After a brief increase in MNREGA
employment figures, reports suggest dip in rural jobs.
Still, the stock markets in India have been on another planet since the beginning of
the coronavirus lockdown. The disconnect between Sensex and the state of economy
has been so glaring that RBI Governor Shaktikanta Das, in a TV interview said,

"There is a disconnect [at stock markets] with the real economy."

Despite the several literatures on the impact of COVID‐19 on the stock market of the
entire economy, there is limited study on it especially in the case of an emerging
economy. To shed light on this aspect, this paper attempts to investigate the impact
of COVID‐19 on the two important stock market of India.
Behaviour of Stock markets in response to various situations:
Stock markets after the announcement of budget
The Union Budget influences the economy, the interest rate and the stock markets.
The ways in which the Finance Minister spends and invests money impacts the Fiscal
Deficit. The extent of the deficit and the means of financing it influence the money
supply and the interest rate in the economy. High interest rates mean higher cost of
capital for the industry, lower profits and hence lower stock prices and vice versa.
On 1st February, 2021 Finance Minister Nirmala Sitharaman announced a balanced
and growth oriented budget. The Sensex soared 2,300 points, or five per cent, to
48,600.61 and Nifty soared by 646.60 points, or 4.74 per cent, at 14,281.20. This
has been the best performance by the stock market on a Budget Day since
1999. Let’s understand sector wise impact of the various policies in the budget on
the stock market.
Health Care: An outlay of Rs. 2,23,846 crore was proposed for health and well-being
for 2021-22. This records a total increase of 137% in healthcare industry. Also
35,000 crores have been assigned for Covid-19 vaccines. Several new schemes like
PM Atma Nirbhar Swasthya Bharat Yojana, Mission Poshan 2.0, Urban Swachh Bharat
Mission, National Health mission have been implemented.
The indices of Nifty Pharma went down by 0.55% but the BSE Healthcare went up by
0.26%. As a result of this Pharma Companies like Sun Pharmaceuticals, Divi’s Labs,
Aurobindo Pharma gained market cap while others like Dr Reddy’s Labs, Cipla were
laggards loosing market cap.

Matched Sources :

Daily Market Analysis - February 2021 - Life is a File

Feb 1, 2021 — The Sensex rallied 2,300 points, or 5 percent, to 48,600.61 and Nifty gained
646.60 points, or 4.74 percent, at 14,281.20 in today's session ... 2%
http://www.lifeisafile.com/Daily-market-analysis-February-2021/ (http://www.lifeisafile.com/Da
ily-market-analysis-February-2021/)
 PLAGIARISM SCAN REPORT
Report Generation Date:

Words:

Characters:

Excluded URL :

3%
Plagiarism

97%
Unique

2
Plagiarized Sentences

69
Unique Sentences

Content Checked for Plagiarism

Banking Finance Service and Insurance (BFSI): An asset reconstruction company Ltd, will be
set up which will serve as an asset management company, to consolidate and take over all
the present stressed assets and debt. This will ultimately be disposed to alternate
investment funds and any other prospective investor for value receivable. The budget
declared an additional recapitalisation of banks to the tune of Rs 20,000 crores.
The BFSI was the top gainers where BSE Bankex went up by 8.33%, BSE finance was up by
7.49%, Nifty Bank up was up by 8.26%, Nifty Finance was up by 7.6%, Nifty PSU banks was up
by 7.38%. Banks like HDFC bank, ICICI bank, Kotak Mahindra bank, SBI, Axis bank and
Indusind bank were the top market cap gainers. Finance Companies like HDFC, Bajaj Finserv,
Bajaj Finance, HDFC AMC, SBI Cards and Payments were the top financial companies to gain
market cap. Insurance Companies like HDFC life insurance, SBI life insurance, ICICI Prudential
life insurance company, ICICI Lombard general Insurance were the top market cap acquirers.
Infrastructure: The government has decided a spending of Rs 5.54 lakh crores. A skilfully
managed Development Financial Institution (DFI) for infrastructure financing shall be set up
and a sum of Rs 20,000 crores is being provided to set up this institution. A lending target
of 5 lakh crores has been set for this institution in the next 3 years. Thus, indices of Nifty
Infra went up by 4.94%, BSE Infra went up 5.56%, Nifty Energy were up by 2.65%, BSE Energy
were up 2.57%. Infrastructure stocks like Larsen & Turbo, Adani Ports, GMR infrastructure,
Rites, Dilip Buildcons were the top market cap acquirers.
Real Estate: The additional interest deduction of Rs 1.5 lakh to purchase reasonably priced
housing has been prolonged an additional year. This is over and above the Rs 2 lakh
deduction available on the interest payment on housing loan. Thus the index of BSE Realty
was up by 6.65% and Nifty Realty was up by 6.31%.
Steel: Certain customs duty on steel will be decreased to 7.5% on semi, flat and long
products of non-alloy, alloy and stainless steel. Duty on steel scrap will be exempt till March
2022. Thus SAIL, Hindalco, Tata Steel, Jindal Steel were the top shares.
Other Important policies:
• No significant changes in wealth tax, covid cess, direct tax and indirect tax.
• Tax audit limit augmented to Rs 10 crores from Rs 5 crores.
• A new world-class fintech hub in GIFT city
• Apportionment Rs 1,500 crores for endorsing digital payments
• A new reconciliation instrument for swift resolution of contractual arguments with
Government/CPSES

Stock market in pre covid period and after introduction of news related to vaccine
Pre COVID-19, market capitalisation on each major exchange in India was about $2.16
trillion. The 2019 stock market rally was limited to 8-10 stocks within the large caps. The
Sensex returned around 14% (excluding dividends) for the year 2019 but prominently
featured blue-chip companies such as HDFC Bank, HDFC, TCS, Infosys, Reliance, Hindustan
Unilever, ICICI Bank and Kotak Bank, without which Sensex returns would have been
negative. However, in the start of 2020, there was overall recovery which led to both NSE and
BSE traded at their highest levels ever, hitting peaks of 12,362 and 42,273 respectively. At
the beginning of the year, there were close to 30 companies that were expected to file
IPO’s. The market conditions were generally favourable as they witnessed record highs in
mid-January.
A Comparison of Pre and Post COVID View of Indian Stock Markets
Bourses Indexes-14 Jan 20 Indexes-23 Mar 20 Indexes-24 Apr 20
Nifty 50 12,362 7,610 9,154
Sensex 41,952 25,981 31,327

Ever since COVID 19 strike, markets loom under fear as uncertainty prevails. lt has sent
markets around the world crashing to levels not witnessed since the Global Financial Crisis
of 2008. Following the strong correlation with the trends and indices of the global market as
BSE Sensex and Nifty 50 fell by 38 per cent. The total market cap lost a staggering 27.31%
from the start of the year. The stock market has reflected the sentiments this pandemic
unleashed upon investors, foreign and domestic alike. Companies have scaled back; layoffs
have multiplied and employee compensations have been affected resulting in negligible
growth in the last couple of months. Certain sector such as hospitality, tourism and
entertainment have been impacted adversely and stocks of such companies have plummeted
by more than 40%.Of the 13 times when Sensex lost 2.5 per cent or more in 2020, seven
came in the month of March
While the world has witnessed many financial crises in the past, the last one being the global
recession of 2008, the current coronavirus crisis is different from the past fallouts.
In response to turmoil, RBI and the Government of India has come up with a slew of reforms
such as reductions of repo rate, regulatory relaxation by extending moratorium and several
measures to boost liquidity in the system howsoever the pandemic has impacted the
premise of the corporate sector. Payments deferrals, subdued loan growth, rising cases of
bad loans and sluggish business conditions have impaired the growth and the health of the
economic activity. Deceleration of GDP growth, demand-supply chain, cut in discretionary
expenses and CAPEX has been the observed during the lockdown, which has led to falling in
household incomes, marketing spends, reduced travel cost and hiring freeze.
Companies with innovative products, increasing distribution reach, technology-driven
processes and healthy balance sheet would revive the growth momentum post
lockdown. Lower oil prices and high capital expenditure by the government in turn creating
capital which will provide a platform to flourish when we overcome COVID 19 pandemic.
As for the outlook for the market, we only need to look back at its history. Drops in BSE
sensitive index is temporary, and each dip provides investors with the opportunity to enter
the market and earn a higher return especially for those with long term horizon. Moreover,
the higher the fluctuations, the higher chances of getting better returns. While these crises
are real and it impacts the world economy, but historically, such crisis has not lasted long,
as the world is competent enough to come up with answers to combat these
challenges. Despite the fact that it’s hard to predict the magnitude and impact of
Coronavirus on the economy, but it is certain that the markets will bounce back soon
the crisis gets over. With an average annual return (CAGR) of around 15 per cent, by growing
from 100 points in 1979 to over 41,000 points in 2019, Sensex has proven time and again
that corrections are temporary, but growth is permanent.
While enough has been written about the increase volatility in the markets, below is some
analysis on the daily movement of BSE Sensex for past 10 years. The analysis is based on the
number of days the index gained or lost 1 per cent or more. This clearly shows how 2020
stands as an outlier when compared to 2011-2019, with approximately six months to go
from here. 2020 stands tall among all these years with roughly having a 1 per cent or more
gain/loss every second trading day.
Also during this Covid 1ST wave period there were many vaccine related news in market
which positively impacted many stocks in the market-
1. Pfizer had applied for emergency use authorisation of its coronavirus vaccine in
India,which lead to tremendous demand for its stock and correspondingly higher prices.

2. Following suit, the Serum Institute of India (SII) and Hyderabad-based Bharat Biotech also
applied to the Drugs Controller General of India (DCGI) for emergency use authorisation of
its COVID-19 vaccine, Covaxin, PTI reported.
3. The pharma sector had undergone consolidation over the past two months after relatively
outperforming the benchmark during March–September.
4. During September, the pharma index was on the cusp of rebounding out of the ongoing
consolidation, indicating impeding acceleration of upward momentum.

5. The temperature sensitivity to maintain the efficacy of a vaccine calls for reliable, fast, and
secure logistics partners who understand the importance of cold chains.“ Logistics
companies and airlines are the key stakeholders in ensuring that the COVID-19 vaccine can
get from one place to another and has the required capability, and “Due to the shortage of
cold chain logistics companies in India, companies like SpiceJet, Snowman Logistics and Blue
Dart Express also stood a benefit from this play

Stock market during the second wave:

Despite the knee-jerking reaction of the stock market during the first wave, the markets
were touching a lifetime high amid the deadly second COVID-19 wave which was at its peak
during May, 2021. While globally this was supported by unprecedented fiscal support and
monetary easing that protected many of the developed economies from collapsing, in India,
despite moderate support, the markets simply rode the global liquidity wave.

Matched Sources :

Covid-19 and the Indian stock market movement - TREKTRADERS

· This clearly shows how 2020 stands as an outlier when
compared to 2011-2019, with approximately six months to go
from here. 2020 stands tall among all these years with
roughly having a 1 per cent or more gain/loss every second trading day. *2020 Data till 3%
July 22nd, 2020. Data Source- …

https://trektraders.online/covid-19-and-the-indian-stock-market-
movement/ (https://trektrad ers.online/covid-19-and-the-indian-
stock-market-movement/)
 PLAGIARISM SCAN REPORT
Report Generation Date:

Words:

Characters:

Excluded URL :

0%
Plagiarism

100%
Unique

0
Plagiarized Sentences

64
Unique Sentences

Content Checked for Plagiarism

The corporate sector stood to face the heat more from demand than the supply side. With
rising medical expenses and fresh fears of a slowdown leading to job losses, discretionary
consumption was at the receiving end. The loss of productivity and localized restrictions
threatened supply chains and fuelled inflationary pressure. To make matters worse, unlike
the past year, when commodity prices were benign at the onset of the pandemic due to
widespread fears of a global slowdown, commodity prices were soaring, riding on the
optimism of a return to growth in many developed markets and the roll out of mass
vaccination. Hence, for India-centric companies, in addition to slow top line performance,
gross margin and operating margins were getting squeezed. As the markets swung from
despondency to euphoria, investors didn’t want to miss a recovery rally and thus stay put in
the market in hopes of returns. So while Indian equities decoupled for a few weeks of March
and April in 2021, the losses have been recouped.
Better balance sheet quality and exceptional cost management have helped have helped the
big companies to make a recovery thus, gaining disproportionate market share. Thanks to
the global exposure of most Nifty constituents like technology, pandemic-proof pharma,
commodity rally driven metals or well-run banks with adequate capital and buffer provisions,
the second wave is unlikely to make a big dent to earnings. Rural facing businesses and
bottom of the pyramid lenders faced some challenges, but they were perceived as short-
term in nature
Equity have been an outperforming asset class going by the Nifty return with a CAGR
(compounded annual growth rate) return of close to 11.2 per cent in the past fifteen years,
although earnings have lagged the price performance, with Nifty earnings were growing at a
CAGR of only 6.7 per cent over this period. In fact, it has been a tale of two halves that has
an important bearing on market return, going forward as well.
In the first phase, true to the saying that markets are slaves of earnings, the annualised Nifty
return over an eight year period of 2006-2013 at 10.5 per cent closely tracked the
annualised earnings growth of 10.4 per cent. However, this strong correlation was
completely broken in the second phase i.e. from 2014 to 2020, when the annualised
earnings growth of 2.6 per cent had been way behind annualised Nifty return of 12 per
cent. Several structural factors have contributed to a rally sans earnings.
Demonetisation had been an important contributor in encouraging savings. The young
population with no old age security in India have been a strong contributor to equity flows as
most young professionals swear by SIP (Systematic Investment Plans). The assets under
management of equity Mutual Funds have risen to a staggering Rs 10 lakh crore at the end
of FY21 from Rs 1.65 lakh crore in FY14 – more than six- fold rise in seven years. The
pandemic has further bolstered the so called “equity cult” amongst retail investors with the
past year seeing the opening of 1.43 crore demat accounts as against 50 lakhs in the
preceding year. Paltry return in alternate asset classes like real estate in recent times and
record low interest rates have also been extremely supportive of money flowing to equities.

A recent study of RBI analysing equity return data of 15 years suggest liquidity support to
have a greater bearing on equity prices compared to economic prospects. While the surge in
FPI (foreign portfolio investment) flows has been the icing on the cake post pandemic,
domestic liquidity has also provided solid support to equities.
So investors in Indian equities may have to live with optical overvaluation and not shun the
markets for the same. The current valuation is close to a historic peak, but could look
reasonable from an FY23 perspective, should earnings recover meaningfully.
Stock market in the current time before the onset of the third wave
On 16th September, 2021, BSE Sensex jumped 418 points to end at 59,141. Nifty 50 index
ended at 17,629.50, rising 110.5 points or 0.63 per cent. IndusInd Bank and ITC shares were
top performers, gaining 7 per cent each, followed by State Bank of India (SBI), Reliance
Industries Ltd (RIL), Kotak Mahindra Bank, ICICI Bank, Axis Bank, Bajaj-Auto, HDFC Bank. On
the flip side, TCS stock fell the most. Stocks such as Tech Mahindra, Tata Steel, Bharti Airtel,
HCL Tech, Dr Reddy’s Lab, Infosys, Titan Company were top Sensex losers. Sectorally, the
Nifty PSU Bank index rallied 5.43 per cent ahead of Finance Minister Nirmala Sitharaman’s
press briefing.
After the second Covid wave and concerns over its fallout on the economy kept market
sentiments under check over the last few months, a decline in cases over the last month, a
pickup in vaccination pace and economic activity, and better than expected earnings growth
by India in the quarter ended June 2021 has helped improve market sentiments. Another
factor that has helped the markets rise has been the participation of foreign portfolio
investors. In July, while they had invested a net of only Rs 4,600 crore into Indian equities,
they had pulled out a net of Rs 11,300. While liquidity is strong, the continuing low interest
rate environment, which is likely to stay for some time, is also helping the rise.
While there is huge liquidity in the market, which is flowing both into the secondary market
and even into the primary market (into the large number of IPOs that are hitting the market),
there is optimism around a revival of earnings growth following a strong performance by
India in September. There is also a sense that since the government did not impose a
complete shutdown following the second wave of Covid, it is unlikely that there will be
a shutdown if there is a third wave either. Thus, market participants believe that the
economic activity will not be derailed. Some feel that since big lessons have been learnt from
the second wave, India is much better prepared to handle a third wave, mortality will be
lower as many more people have been vaccinated now.
Delinked stocks and GDP
When the global economy is sinking due to the pandemic shutdown stock markets (capital
markets) are booming; allowing those at the top of the economic pyramid make wealth when
billions of people are losing theirs. The World Bank said in its 'Global Economic Prospects'
report of June 2020 that the world economy was facing its worst recession since World War II
and that the growth was expected to shrink (negative) by 5.2% in 2021. It also pointed out
that "the largest fraction of economies experiencing declines in per capita output since
1870".

Did the delinking happen now?

The Indian stock markets had discounted massive economic shocks of demonetisation and
GST that derailed the economy in 2017, and bank failures (PMC, Yes Bank), NBFC crisis
(IL&FS, DHFL) and growing NPAs in the subsequent years that prevented the economy from
bouncing back.
The upward trend in the stock markets continues amidst the trade war against China. In the
middle of rising clamour to boycott Chinese goods, imports from China it was objected to
saying that this will harm local businesses that have already paid for these goods.
It may impact production of key COVID-19 drugs remdesivir and favipiravir and other life-
saving drugs in India as India imports two-thirds of its active pharmaceutical ingredients
(APIs) and formulations from China.
The delinking of stock markets happened in recent times (2015). But this delink was evident
during the massive market crash of 2008 and earlier in 2000-01 when the dotcom burst
happened.
Globally, this break down has been evident since the 1929 Great Depression.
That is nearly a hundred years of historical evidence. It needs no elaboration that stock
market bubbles build up when the link with real economy is broken. Valuation of stocks
reaches irrational highs, leading to an eventual crash.
Reason for the market boom
Liquidity infusion:-
• In the US, the Federal Reserve has not only reduced interest rate to near 0.25% to create
more liquidity but also decided, as part of its stimulus, to buy corporate bonds from open
market.
• In India, it happens even without massive crashes of the 2007-08 proportion. It is no
secret that every time market falls sharply, the government instructs public sector
undertakings like the LIC and SBI to step in quickly, buy stocks and boost "market
sentiment".
 PLAGIARISM SCAN REPORT
Report Generation Date:

Words:
Characters:
Excluded URL :

1%
Plagiarism

99%
Unique

1
Plagiarized Sentences

69
Unique Sentences

Content Checked for Plagiarism

Lure of gambling:-
• Lowering the interest rate to near zero in the US further incentivises people to borrow
money virtually free of cost to invest in stock markets. This is one reason why the US
stock market has made a swift recovery. With the Federal Reserve watching their back, it
is fun to bet in the stock market. Stock traders know the Fed will protect the long-term
profitability of big corporations with taxpayers' money.
• In India, the RBI has been reducing headline interest rates. Though it has not reached
near zero yet (repo rate is 4%), it has generated additional liquidity of Rs 8.1 lakh
crores. Most of it is being parked in the RBI's own reverse repo account, reflecting the
futility of liquidity infusion.

The stock market is setting records during A Pandemic

1. Stock markets are forward-looking:-
Investors look toward future earnings to determine stock prices. It’s all about income,
growth, and potential.
Many investors are also hopeful for a viable coronavirus vaccine, which would hopefully
put an end to social distancing requirements and help improve parts of the economy that
are currently hurting the most (travel, dining, hospitality, events, and in-person
entertainment).
2. Stock market is one of the best current options for Investors:-
Interest rates have plummeted, with most bank accounts, CDs, and government bonds
paying much less than 1% interest. Many investors who are searching for yield have
turned to the stock market and dividends as a way to generate a return on their
investment.
3. Consumers Have Shifted Their Spending:-
The coronavirus pandemic hasn’t had a negative financial impact on everyone. But it has
shifted how people are spending their money.
A prime example is spending that would have been earmarked for summer
vacations. Fewer people are traveling, staying at hotels, or eating out at restaurants. But
that doesn’t mean they aren’t spending money elsewhere. Instead of spending money on
airline tickets, hotels, and restaurants, they may be shopping online or spending more
money on hobbies or home improvements.
And some of that money may have ended up in the stock market, further pushing up
stock prices.

Why stock market is rising amid uncertain economic outlook?

Aware by the spread of COVID-19, by February 2020 it was clear that the problem was
huge and spreading fast all over the globe. Various countries started lockdowns of
different magnitudes and the economic activity paused.
For the June quarter GDP growth was sharply negative. It ranged from -10% in developed
economies to -24% for India! It looked like the world would go into a state of economic
depression, even worse than that in 2008.
From the past experiences, central banks and governments of the developed economies
unleashed a series of fiscal and monetary stimulus measures unlike and much greater in
scale compared to anything that the world had ever seen.
The US Federal Reserve, European Central Bank, Bank of Japan and most other countries
cut rates, bought assets (equities, debt) to support the financial markets, offered lines of
credit and flooded the world with monetary liquidity.
Governments in these countries put money directly in the hands of the people, subsidized
payrolls of companies and offered tax cuts. Given the size and scale of these measures,
they succeeded, and many economies saw a V-shaped recovery in the quarter ending
September 2020.
Global central banks and Governments have made it amply clear that they will use all
means to keep markets stable and support growth. In the US both the leading parties are
supportive of a second fiscal stimulus package.
• The first factor is to understand the markets is the flood of global liquidity and low-
interest rates will continue for a long time and asset markets continue to be supported by
such measures. Easy money fuels risk-appetite and thus the record-high retail investor
participation in the markets globally and also to see continuous global money flows to
emerging markets like India. In India too, the RBI and Government’s objective of kick-
starting growth is more important than inflation control at this point.
• The second factor is liquidity in the system is ample, interest rates have been cut and
the impact of these measures is in the form of lower lending rates. The fiscal deficit may
also be allowed to run at high levels for a year or so. It means that Indian consumers and
corporates will benefit from low-interest rates for quite some time. This has multiple
implications. Lower rates can lead to demand stimulation as consumers and borrowers
can buy bigger or more with the same EMI. For corporates, it means improved bottom-
line as interest costs reduce and also increased capacity to borrow for future growth.
• The third factor is that the Indian Government has begun to implement far-reaching
fiscal and policy steps to keep investor sentiment positive viz. reduced tax for new
investments, production-linked incentives for more than 10 identified sectors (Make-In-
India), support for medium and small enterprises, privatization of key PSUs and continued
support to the rural economy, indigenization of defence production, labour reforms and
farm sector reforms.
Equity valuations also have a link with interest rates. Lower the rates, higher the
valuations.
The potent combination of the three factors discussed earlier can keep sentiment buoyant
and allow markets to ignore sluggish corporate results and valuations for a few
quarters. Moreover, while valuations do look expensive on certain parameters, they are
justifiable on certain others. Overall, they indicate that the market expects a smart
recovery after negative growth in FY21.
While it appears that there is disconnection between the economy and markets, it is just
the difference between the current reality and expected future. If growth materializes as
expected, we will continue to see the markets do well and the economy catching up.
A significant risk is that we are seeing a second/third COVID-19 wave in Europe/US. A
move towards extended lockdowns may derail the nascent economic recovery. In India
too, we have seen a second wave in certain States which had earlier done very well to
contain the first wave.
Moreover, India has had a very limited fiscal stimulus so far (less than 2% of GDP). Thus
the sales pickup seen recently may be due to pent-up demand and it needs to be seen if
it continues beyond the festive season. With employment levels still below pre-COVID
levels and many businesses shut permanently, especially in the services sectors, demand
may not bounce back fast without further fiscal measures. Another key area is financial
sector stress which remains an area of concern while recent commentary on asset quality
has been incrementally better than feared.
If these persist and expected growth does not come through, positive market sentiment
will fade. Then there may not be disconnection between markets and economy.
Matched Sources :

Why stock market is rising amid uncertain economic outlook ... 1%

· For the June quarter GDP growth was sharply negative. It ranged from -10% in
developed economies to -24% for India! It looked like the world would go …

https://www.financialexpress.com/market/cafeinvest/why-stock-market-is-rising-amid-unce
rtain-economic-outlook-understanding-market-economy-disconnect/2134447/ (https://ww
w.financialexpress.com/market/cafeinvest/why-stock-market-is-rising-amid-uncertain-econ
omic-outlook-understanding-market-economy-disconnect/2134447/)
 Page 1
PLAGIARISM SCAN REPORT
Report Generation Date: September 18,2021

Words: 820

Characters: 5368

Excluded URL :

0%
Plagiarism

100%
Unique

0
Plagiarized Sentences

38
Unique Sentences

Content Checked for Plagiarism

The COVID-19 pandemic had negatively impacted the stock exchange where Nifty saw a decline
approximately by 29% and therefore the Bombay Sensex went down by 13.2%. However, during the
second wave the market reaction was surprisingly muted. There are many factors that would have led
to such a pointy reaction during the primary wave. Layoffs, company closures, and production have
harmed the profitability of most sectors of the economy, including travel and tourism, land, and
aviation, among others. Low profitability and insufficient demand, combined with the uncertainty
caused by the pandemic, resulted in herb sales, causing a pointy drop by the stock exchange during
the first stages of lockdown and therefore the first wave of COVID-19 infection. However, as people
became more conscious of the virus and commenced to adapt, the stock exchange became more
stable with each passing day, despite the rise in cases. the govt measures that reduce the impact of
an epidemic like COVID-19 had a positive effect on stock returns, and this is often particularly evident
within the case of a second wave. Indian stock exchange responded positively during the second
wave thanks to the impact of fiscal stimulus and positive investor sentiments.The budget of 2021 had
led to the simplest ever positive trend since 1999. Many government policies especially within the fields
of health, infrastructure, banking finance service and insurance, land, steel has arose a positive
sentiment within the investors. The budget was balanced and growth oriented also there have been
no significant fluctuations within the wealth tax or direct and tax which could have arose a pessimistic
sentiment. During the second wave of COVID-19 despite the economic despondencies the stock
markets were hitting all time high. A reason which could have attributed to the present positive trend
might be the reduction in cases and therefore the mass vaccination drive. there have been lesser
restrictions imposed by the govt with reference to the lockdown. the large companies recovered well
by adopting efficient cost management techniques and while the tiny scale firms faced challenges
 Page 2
they were short term in nature. The domestic liquidity is high thanks to an upsurge within the foreign
portfolio investment. As a results of the present scenario the market sentiment is optimistic that
economic activities wouldn’t derail albeit the third wave hits India. An unusual phenomenon has been
observed during the second wave of covid-19. the worldwide economy was sinking yet those at the
highest of the pyramid were earnings billions et al. were losing wealth. Thus, there's a delinking
between the economy and therefore the stock exchange. One factor which caused this phenomenon
is that the liquidity infusion. Whenever the market sentiment is pessimistic public undertakings like LIC
and SBI to shop for quickly buy stocks and boost market sentiment. The RBI has been reducing its
interest rates, which has generated additional liquidity of Rs 8.1 lakh crore. During this fiscal year,
foreign institutional investors have net invested a complete of Rs 83,682 crore into Indian stocks, after
slacking off on India over the previous couple of years. The stock exchange rally is clearly an
impression of the straightforward money policies being run in much of the West. Further, the
participation of retail investors within the stock exchange has increased this year. Between December
2019 and June 2020, the amount of demat accounts rose by 3.9 million to 43.2 million accounts, a tenth
rise. In fact, just between end-March, after a complete lockdown was introduced to tackle Covid-19,
and June, 2.4 million new demat accounts were opened.Learning and recommendation• Once global
recovery is on a firm footing, inflation, which is already lurking, might rear its ugly head beyond the
comfort of developed countries’ central banks, forcing policy makers to unwind liquidity support, thus
punctuating the worldwide equity rally. However, for Indian equities, the long-term structural liquidity
support is tough to ignore and any correction will therefore be short-lived. • Unlike FY21 where a tide of
liquidity lifted all boats, FY22 is probably going to be a stock picker’s market with different businesses
showing varying degree of resilience to the pandemic after weathering it for a fairly long period.
Investors, therefore, need to be discerning and follow well researched advice on stock selection. Any
pull back is a chance to shop for into long-term winners from the technology sector, well capitalised
large financials, companies benefitting from global sourcing faraway from China, promising
healthcare/pharmaceuticals, consumer companies gaining from the shift to organised plays, “Make in
India” beneficiaries and choose infrastructure plays with strong balance sheets.• Adequate fiscal
stimulus is to be provided by the governments to the central banks to assist in increasing the cash
supply and reviving the sluggish demand. Appropriate refinancing schemes, liquidity supports, relaxed
debt payment structuring, and regulatory forbearance are required to encourage small, medium
scale, retail, and informal industries. Acquiring support from international multilateral banks for his or
her overburdened and highly reliant healthcare systems is additionally helpful.

Congrats! Your Content is 100% Unique.