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Indian markets dangerously resist virus resurgence

Fund managers have turned net sellers of local equities after six months of inflows. The benchmark Nifty 50 just had its best day in almost a month, however, and the MSCI India Index is up over the period too.

April 29, 2021 / 11:45 AM IST
Image Source: Shutterstock

Image Source: Shutterstock

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India’s virus resurgence is alarming almost everyone except foreign investors. As hospitals in New Delhi run short on oxygen, funeral pyres burn across the capital and residents wonder which city will get overwhelmed next, local markets are ticking along in the expectation of attractive returns.

Fund managers have turned net sellers of local equities after six months of inflows. The benchmark Nifty 50 just had its best day in almost a month, however, and the MSCI India Index is up over the period too.

The India basket trades at an exuberant multiple of nearly 21 times projected earnings for the year, a premium to the MSCI Emerging Markets Index. After depreciating earlier in the month, the rupee is rebounding too.

Multiple factors underpin the optimism despite more than 360,000 new cases in 24 hours on Wednesday. India’s economy is slowing but less harshly than during last year’s lockdown.

There’s confidence in a faster vaccine rollout, as well. Half the country could be inoculated by year-end. About 9 percent of the population has had one dose, per Reuters, a higher rate than in Japan and Australia. The rate is double in big cities like Mumbai.

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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The acceleration of digital adoption is also supporting longer-term perspectives. The crisis has forced people and businesses online, putting India in position to develop technologically faster than otherwise. A strong capital cushion provides extra comfort.

Foreign-exchange reserves of almost $600 billion are roughly double the level in 2013, when the US Federal Reserve curtailed its quantitative easing programme and triggered rupee volatility. Prime Minister Narendra Modi’s policy agenda from incentives for manufacturers to privatisation is also a draw.

The assumption is that emerging market returns will outpace those of developed ones where interest rates are low or negative. Another is that the rich sliver of the population, whose consumption matters most, won’t be impacted much, allowing index heavyweights from Reliance Industries to HDFC Bank to thrive even as smaller rivals struggle.

But economists are starting to slash their growth forecasts for India, rising inflation may yet prove a spoilsport, and eventually the weakened spending power of the masses who receive little official support will bite. The tragedy discount looks too low.

Disclaimer: “Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.”

first published: Apr 29, 2021 11:45 am