MUMBAI: The near 2 per cent shellacking that Indian equity market received on Friday after four days of gains will for starters ease the disgust of the likes of Zerodha co-founder Nithin Kamath and, secondly, give some optimists in the market a reality check.

Kamath, whose business benefits from the hyper activity in the market, ironically expressed his disgust at the fact that the stock market was surging when thousands are suffering for treatment and basic medicines in the country due to a violent second wave of Covid-19 infections.

The co-founder of the country’s largest stock broker, like many others, perhaps mistook the gains in the market seen earlier this week for investors’ apathy to the tragedy unfolding on the ground. Friday’s market action showed the reality is far from that.

That the selloff came when one of the biggest India bulls, Jefferies’ Christopher Wood, raised India’s weightage in his portfolio is a tell-tale sign that investors are still unable to break the shackle imposed on their optimism by Covid-19.

“It is a very challenging year, because there is the Covid second wave, then probably even a third wave. A lot of things are happening on the ground, which are keeping the consumers indoors or mobility restricted,” Raamdeo Agrawal, co-founder and Chairman of Motilal Oswal Financial Services, told ETNow.

While the surging Covid-19 cases had tempered investors’ enthusiasm earlier this month, investors hoped that the acceleration in vaccination would help the economy ride out the storm with limited damage. Those hopes took a hit on Friday after Mumbai express and several other states reported acute shortage of doses and expressed their inability to administer any vaccine for the next few days.

The potential delay to the country’s vaccine rollout will continue to raise the prospects that ongoing lockdowns in major states like Maharashtra, Delhi, Karnataka and others will continue, as governments struggle to get a grip on rising cases.

And the market is ill-prepared.

“The stock market is clearly still potentially vulnerable in the absence of concrete evidence that India’s second wave has peaked. For if a national lockdown has so far been avoided, state governments are taking their own measures,” Chris Wood said in the latest edition of GREED & fear report.

India’s test positivity rate of more than 20 per cent and the rising death toll keep the risk of more states imposing stricter lockdowns in the coming weeks high.

While the 2 per cent gains in Nifty50 this week will be interpreted by some as a sign of improvement, investors know they are caught in the whirlwind of indecisiveness and hazy market signals that have hamstrung their ability to climb the wall of worry, that is the second Covid wave.

Interpreting the market’s resilience for strength is perhaps the riskiest bet to make. “The risk is whatever outcome people are pricing in, they don’t know what the risks are ahead. To believe the economy will settle down in the next 12-24 months will be premature right now,” Agrawal said.

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