Moneycontrol Pro Panorama | Growing lockdowns to contain COVID-19 worry investors

The city of more than 20 million people now has the most daily cases in India and restaurants, malls and gyms were all closed. Weddings can go ahead with guests limited to 50 people, while only 20 can attend funerals. "Don't panic. All essential services will be available through the weekend," Delhi's chief minister Arvind Kejriwal said. (Image: AFP)

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Indian equity indices strike a lonely pose in Asia, with the Sensex down by 2.4percent at 12.27pm, even as others such as the Nikkei, Shanghai, Singapore and Hang Seng were trading flat to higher. Its outlier status is an outcome of a continuing second wave of cases, with more cities being swamped and a weak healthcare system proving inadequate to handle the demand for hospitalisation. Public healthcare has failed its citizens for a second time in COVID-19.

While lockdowns may be a harsh way of stopping COVID-19, it does appear inevitable to dull the spike in new cases. In Maharashtra, while it’s too early to say for sure, there does seem to be some deceleration in growth in daily cases. But it’s still high in absolute terms at 68631 cases as of April 19. Meanwhile the growth in cases in other states is alarming with Uttar Pradesh coming out of nowhere to take the second position, reporting 30566 cases, twice its reported number a week ago.

Delhi takes third place and it’s not surprising that the government has declared a lockdown of sorts today, similar to Maharashtra, with essential goods and services to continue and everything else to remain shut. While the government has declared this for a week to begin with, to add health infrastructure, an extension can’t be ruled out if the growth in cases does not decelerate. Rajasthan too has declared a 15-day lockdown and more states are likely to be compelled to follow suit with their own measures.

Eventually, it could resemble a national lockdown without being called one, with few states remaining fully open while there will be restrictions of varying degrees in most states. The economic effect of this will be felt with both the formal and informal parts of the economy feeling the pinch, as states with high and rising loads are important pillars of the economy. Even then, the impact will be less than the complete lockdown imposed last year.

The central government has also taken a call to curb the supply of oxygen for industrial use, except for a few select industries such as pharmaceuticals and steel, and this could hit industrial output as well till the restrictions stay in place.

While there will be a hit to consumption, mainly of the discretionary kind, due to the lockdowns, loss of employment could aggravate the situation. The markets are right to price in these impacts on near term growth but once the second wave subsides eventually, the economy should gradually get back on its feet.

But the second wave should teach states a lesson to create and keep spare health infrastructure and manpower on standby to tackle a third wave, when it comes, whatever be the cost. Once vaccinations have covered enough of the country’s population to ensure there is adequate immunity, only then we can afford to lower the alert levels. In the longer run, the ability to get the vaccination programme back on track and improving the overall state of our health infrastructure (a message from the first wave that seems to have already been forgotten) are the only two sustainable solutions to COVID-19.

On a related note, in our Opinion section today we have looked at How stringent are India’s mini-lockdowns? and Second wave casts a shadow on towering office realty market.

While the near term hit to the economy may be a worry, today’s story from FT, free for Pro subscribers, has some good news to look forward to in the longer run: Global savers’ $5.4-trillion stockpile offers hope for post COVID spending.

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Technical picks: Magma Fincorp, Hindustan Copper, Apollo Hospitals and Dr Reddy’s (These are published every trading day before markets open and can be read on the app)

Ravi Ananthanarayanan

Moneycontrol Pro​