Moneycontrol Pro Panorama | Medium term growth intact despite COVID case surge

Dear Reader,

Will the surge in new COVID-19 cases upend the recovery?

The increase in cases is certainly alarming. On Tuesday, India reported 28,903 cases, the highest in three months. Of this, 17,864 cases were from Maharashtra, the most since September 30 last year. The rise is steep enough for a central government panel to declare this a second wave in the state.

But it is not only Maharashtra. Cases are rising in other states such as Punjab, Tamil Nadu and Karnataka as well. The positivity rate of tests has doubled to 3 percent now from around 1.5 percent in mid-February, according to Nomura Research. It is lower than the 11-12 percent seen in July, but that is hardly any consolation. Four states are poll-bound and this could contribute to a further rise in COVID-19 cases.

The rise in cases will likely dampen consumer and business sentiment. Indeed, our economic recovery tracker (updated yesterday) showed that the pace of the recovery is faltering. Similarly, Axis Bank said earlier this month that its set of leading and concurrent high frequency indicators are showing signs of plateauing about 3 percent below pre-lockdown levels of activity, which it termed a worry.

That said, the consensus seems to be that even if there are near-term hiccups, over the medium term the recovery will gain traction. That’s primarily because new restrictions imposed by the states are less stringent than what they were in April and May last year. No one wants to return to the draconian lockdowns of the initial days of the pandemic when information about the virus was patchy. The number of deaths from COVID in this wave is low and there’s no evidence so far that suggests a steep rise in hospitalisation.

Moreover, the vaccination drive is accelerating. On Tuesday, India inoculated about 3 million people, the highest since the drive began. As the government approves new vaccines – including those from Pfizer, Moderna, J&J and others --, India could reach a vaccine pivot point sometime in the July to September quarter this year, suggests Nomura. It defines this as “the point at which vaccines start to become more widely available and show demonstrative success in suppressing the virus, allowing governments to lift most social-distancing restrictions and citizens to become less fearful.”

Currently, the only reason that can slow down the vaccination drive seems to be suspected safety issues surrounding the AstraZeneca vaccine (Covishield in India). Several European nations have temporarily halted administering this vaccine after reports of isolated cases of bleeding, blood clots and low platelet count after vaccination. The World Health Organisation, European Medicines Agency and AstraZeneca have all insisted the vaccine is safe. The latter has also said that there is “no evidence of an increased risk.”

On its part, India has decided to closely monitor the side effects of all vaccines. As of now, the cases of clotting or bleeding seem to be few and far between and there is no evidence of a clear link between the vaccine and clots. In that scenario, it seems wiser to proceed with the vaccination which could save the lives of people who might otherwise die from the disease.

 Here are today’s investment insights from our research team:

What makes SEBI’s move on AT1 bonds held by mutual funds a contentious issue?

Suryoday IPO: Can long-term prospects outweigh near-term speed breakers?

Nazara Technologies IPO: The game is just starting

What else are we reading today?

Vedanta’s Plan B for delisting gets a twist

West Bengal polls: Trinamool stressed, but BJP not yet home

Why traditional electric utilities are not building green energy projects with gusto

Not splitting GAIL is a sensible move by the oil ministry

Wind power — Which way is the wind blowing?

Emerging market investors focus firmly on central bank decisions (republished from the FT)

Technical picks: Dr Reddy’s Laboratories, UltraTech Cement, Minda Industries and Infosys (These are published every trading day before the markets open and can be read on the app)

Cheers,

Ravi Krishnan