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Ides of March: Will the second COVID-19 wave derail the bull run of FY21?

Investors can look for knee-jerk reactions in stocks as an interesting opportunity to buy and commit a small proportion of fresh capital for the long term ahead of the Q4 earnings season in April, say experts.

March 30, 2021 / 05:26 PM IST

It was March 23, 2020, India had reported around 500 coronavirus cases when the government first imposed a nationwide lockdown.  The lockdown was extended as infections continued to rise. The country, however, appeared to have the spread under control as the year ended but infections have galloped in recent weeks, with the daily case count coming close to 70,000.

It is not just India where cases are rising, several other countries, including in Europe, are seeing an uptick, raising concerns of another round of lockdowns disrupting businesses and economic activity.

Indian markets took a hit as the Nifty plunged more than 23 percent in March 2020 amid uncertainty over the spread of the virus across the globe. But, the dip proved to be a multibagger opportunity for those who bought the dip or invested fresh money, thanks to liquidity infusion and government policies to lift growth and kickstart investments.

We are facing a similar situation now. Yes, the second wave is here but is limited to few regions, so far, but the market has taken note. The Nifty is down about 6 percent from the high of 15,430 recorded in February 2021.

India saw 68,020 new coronavirus cases in a span of 24 hours, the highest single-day rise so far this year, taking the country's COVID-19 tally to above 1.20 crore, according to Union Health Ministry data on March 30.

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COVID-19 Vaccine

Frequently Asked Questions

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How does a vaccine work?

A vaccine works by mimicking a natural infection. A vaccine not only induces immune response to protect people from any future COVID-19 infection, but also helps quickly build herd immunity to put an end to the pandemic. Herd immunity occurs when a sufficient percentage of a population becomes immune to a disease, making the spread of disease from person to person unlikely. The good news is that SARS-CoV-2 virus has been fairly stable, which increases the viability of a vaccine.

How many types of vaccines are there?

There are broadly four types of vaccine — one, a vaccine based on the whole virus (this could be either inactivated, or an attenuated [weakened] virus vaccine); two, a non-replicating viral vector vaccine that uses a benign virus as vector that carries the antigen of SARS-CoV; three, nucleic-acid vaccines that have genetic material like DNA and RNA of antigens like spike protein given to a person, helping human cells decode genetic material and produce the vaccine; and four, protein subunit vaccine wherein the recombinant proteins of SARS-COV-2 along with an adjuvant (booster) is given as a vaccine.

What does it take to develop a vaccine of this kind?

Vaccine development is a long, complex process. Unlike drugs that are given to people with a diseased, vaccines are given to healthy people and also vulnerable sections such as children, pregnant women and the elderly. So rigorous tests are compulsory. History says that the fastest time it took to develop a vaccine is five years, but it usually takes double or sometimes triple that time.

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Experts see this as a buying opportunity, especially for long-term investors. The Nifty50 has risen by about 70 percent since March 2020 year and more than 200 stocks gave multibagger returns.

Also Read: Sensex, Nifty gain up to 88 percent since 2020 lockdown; more than 250 stocks turn Multibaggers

We are on much more stable grounds but it remains to be seen if rising COVID cases have an impact on other states as well. To date, cases are largely concentrated in Maharashtra, accounting for 63 percent of all active cases in India, said an Elara Securities report.

“While the rise in cases does pose a challenge with respect to disruption of economic activity, the lockdowns so far have been localised. The likelihood of a pan-India lockdown remains low as the mortality rate in the current wave is 0.5-0.7 percent vs 1.5-2.0 percent in the previous one,” it said.

The prime mover of this downtrend in the market, especially in the week gone by, was the selling by foreign investors. FIIs turned net sellers in all five days of the week by pulling out more than Rs 6,200 crore in the cash segment of the Indian equity market, Moneycontrol data shows.

“FII selling has been triggered by concerns surrounding the impact of the second wave of COVID attack. Now, we don't have clarity on the intensity of the second wave. It is largely confined to some districts with rural India unaffected,” Dr V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services told Moneycontrol.

“The second wave is unlikely to have a major impact on growth and corporate earnings but the jury is still not out on this. This exceedingly volatile phase of the market is turning out to be difficult terrain for traders but for long-term investors, dips will provide opportunities to buy quality stocks. IT, financials, cement, chemicals are good bets,” he said.

What should investors do?

We are in a bull market and corrections are part of it and this one is no different. There will be phases when the market will give opportunities to investors who are sitting on the sidelines to enter. And, this is just one of them.

Further selloff cannot be ruled out but we are unlikely to go back to retest March 2020 low. Looking back, the rally from March 2020 lows was nearly 100 percent which is hard to believe, given the circumstances.

“After this swift rally, a healthy correction from intermediate tops of 15,431 is only logical. The current correction can be metaphorically compared to the steady process of releasing steam from a pressure cooker in order to let the food cook,” Nirali Shah, Head - Equity Research, Samco Securities, told Moneycontrol.

“Investors can look for knee-jerk reactions in stocks as an interesting opportunity to buy and commit a tiny proportion of fresh capital for the longer term, before the start of Q4 earnings in April.”

Shah added coronavirus mutants were also leading to worries about fresh lockdowns. Therefore, the bulls have preferred to remain on the sidelines as the global economy attains the much-needed stability around the second wave of coronavirus.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Kshitij Anand is the Editor Markets at Moneycontrol.
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