Impact of COVID in Indian stock market

covid Sep 30, 2020

The Indian stock market has gone under turbulent times due to the COVID-19 pandemic. The Indian government is trying its best to ensure the economy is least impacted because of the pandemic. In this article, we will see how the stock market has been impacted because of the virus and what lies ahead for investors in the coming months.

The March fall

March 2020 has to be one of the toughest months for investors and traders. The Sensex fell as much as 23% in March. The worry around the Coronavirus started reflecting in the stock market from the start of March as the cases started coming in India. On 23 March 2020, Sensex hit a low of 25,981. All the sectoral indices closed in red, the banks and financial indices lost the most. From the year peak which was around 42,000, it felt almost 38%. This was the worst decline the market has seen since 2008. Though in the coming weeks, the market recovered but it was a challenging phase since no one knew how much more the market would fall.

The rise in market

The market since then has recovered and touched a 39,300 level on September 15, almost 50% rise from the bottom. There was a lockdown starting 25th March where all economic activities came to halt. Once the lockdown norms were relaxed, the number of COVID cases started rising in the country. Today, we are getting 80,000 to 1,00,000 fresh cases every day. The GDP numbers that came in August showed GDP contracted by 23.9% in April to June quarter. Barring the IT sector, all the other sectors were affected and it was evident from their quarter result (Q1).

Why is the market up given so many cases?

Now a lot of people are asking this question - why is the market going up despite so many cases, slow business and low GDP numbers? We did some research and found some reasons behind the rise:

The rise in the number of new investors - Ever since the market crashed in March a lot of new investors started investing. Zerodha, India's largest brokerage company saw a MOM rise of 100% in March. A lot of these new investors came in the market and invested for short term gains. Central Depository Services Limited which facilitates transacting and holding in securities in the electronic form and facilitates settlement of trades on stock exchanges has reported an addition of 19.6 lakh investor accounts at a monthly average of over 6.5 lakh in three months between April and June.

The second reason is liquidity in the market. The RBI has cut the interest rate by 115 basis points since March. The returns in fixed deposits have reduced to 5% and people are doubtful that it won't even beat inflation for the coming year. Hence a lot of people are investing in the equity market. The low-interest rate holds for the US as well and as a result, India has seen a significant increase in Foreign Portfolio Investment (FPI) since June (a net inflow of Rs 91,044 crores between June - August).

Most impacted sectors

Almost everyone has been impacted by the pandemic be it investors or companies. Some sectors have significantly been impacted because of the lockdown and the fear of the virus. Here are the top impacted sectors -

Automobiles - During the lockdown, though some businesses were operating with limited resources, automobiles were completely shut down. Even after lockdown, since buyers are not sure of the future, no one is putting money in buying a car. Automobiles companies sales dropped upto 85% in the Q1 of FY21. For example, Maruti Suzuki sold 76,599 units during Q1FY21, down 81 per cent on year-on-year. While for Mahindra & Mahindra, the number of vehicles sold dropped by 78% to 27,565 units in Q1 FY21. In the last couple of months, the numbers have improved but still, they are far from normal.

Aviation - This is another sector that saw a sharp fall in revenue in the first quarter. The revenue of Indian airlines fell by 85.7 percent in the Q1 of FY21. The industry resumed with a lot of restrictions and even today most people are avoiding travel and hence the industry is continuously in stress. The airlines are still operating with 60-65% occupancy.

Tourism - The tourism industry is one of those which has suffered a lot since lockdown and will continue to suffer in near future. People still prefer to stay at home with a rising number of cases and industry will have hard times till the vaccine comes.

As per data available from Confederation of Indian Industry (CII) -

  • The hotel industry is expected to suffer losses of Rs 1.10 lakh crores.
  • Online travel agencies are expected to acquire a loss of 4 thousand 312 crores.
  • Adventure tour operators can endure damage of 19 thousand crores.
  • Cruise tourism losses can add up to 419 crores.

The road ahead

The future depends a lot on the vaccine news. People who are investing in the market for short term gains should be careful of where they are investing their money. The market has already corrected 8-9% in the last week and until the news of the vaccine arrives, investors can expect such correction in the coming months. There won’t be any easy sailing.

If you look at 2020, it has been a year with maximum big falls. In the last 10 years, 2020 already has the most number of days in which the index has fallen more than 2.5% in a single day. As an investor, you should be careful of your entry point.

To help investors in these difficult times, we created an app with a mission to make stock picking easier. The app is called StockyLab and you can download it now on Android and iOS.

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Abhinav Mishra

I am the author of the book - The Unfortunates. I have written over 400+ blogs across the various niche. I love writing on topics around Finance & spirituality. My personal blog- www.wonderingalma.com

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