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Dear Reader,

The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.

Equity investors seem to be pricing in their worst fears with the broad market down by 3.3percent over Friday’s close at 12.17 pm. This scenario will be one in which later this week, Maharashtra declares a lockdown for a fortnight or more. A big light in the Indian economy will go on dim mode. Already, restrictions in place such as a night curfew and shutting of non-essential shops will affect businesses and earnings of people.

But that’s not all. The curve has turned upward in many other states as well. As of April 1, Maharashtra contributed to 55percent of cases reported in the previous 24hours. That figure has come down to 37percent, with Uttar Pradesh, Delhi, Chhattisgarh and Karnataka the next major contributors. Major metro cities such as Delhi and Bengaluru are seeing cases increase. Delhi’s government is meeting today. The fear would be that faced with being overwhelmed by the case load and the resulting increase in need for hospital beds, the state governments may have little choice but to impose lockdowns.

Thus, while there may be no national lockdown this time, if the major cities are locked down even with lower restrictions compared to earlier, the overall effect on the economy could still be severe. While this is all in the realm of reasonable speculation as of now, the fact is that markets had priced in a robust economic recovery extending into FY23 and the rapid spread of COVID-19 in this period puts the FY22 recovery at risk.

What Covid-19 has taught investors is to be prepared for the unexpected from an investing viewpoint. Few expected the gush of liquidity that lifted all assets, a swift economic recovery, or that industry commodity prices will turn red hot in the wake left by the pandemic, or that supply chain disruptions will be a recurring theme, or the improvement in corporate profitability in several sectors. That uncertainty of not knowing what lies ahead may explain why investors may be taking some money off the table.

Also, a year ago all countries were in the same boat with the difference being how much money they had to throw at this problem. But now, there is a divide growing between the developed economies and developing economies in how they have responded to the pandemic. A better pace of vaccination is expected to see western economies recover faster. The strengthening of yields has also lowered global investor risk appetite. Do read this from the Financial Times on EM currencies (free for Pro subscribers):

Dollar threatens the emerging markets party.

However, while the ongoing wave may delay India’s recovery it will not turn into a lost cause. While it does seem like we have been caught napping, a combination of lockdowns and setting up temporary health infrastructure to deal with hospitalization should bring things under control again. Since lockdowns will be done only in the worst affected areas, some parts of the economy are likely to remain open and industrial activity and even services’ activities such as e-commerce will continue. That should limit the economic damage. Some sectors will be hit hard again, such as entertainment and hospitality. Do read: COVID-19 second wave will sour fortunes of a recovering hotel sector.

While it seems too late for vaccination to bring under control this wave, that should be the priority of the government before the next wave begins. Clearly, the current strategy of the government sitting as the sole negotiator at the table, trying to keep the cost of vaccination down and a centralized approach to distribution has not worked well. An alternative approach is required where the private sector is allowed to make the profits it requires to make these investments to ramp up output and vaccination, focus the vaccination drive in recurring problem locations, and give state governments more freedom in determining the pace of vaccination.

If investors are able to see a clear plan to vaccinate the country in a shorter period of time than now, then they will buy into the India recovery story again.

The sole stock standing in the green in the Sensex at 12.17pm was Dr Reddy’s Laboratories, one of the companies that will be supplying the Russian Sputnik-V vaccine in India, once it gets regulatory approval. That’s a mark of how investors are looking at the problem. Do read our research team’s take: What ‘second wave’ means for investors in Indian pharma.

From our Opinion Team:

Global food prices surge, local trends show pockets of relief

China is the world’s biggest economy, in PPP terms

US warship muddies India’s waters

Carbon neutrality — Commitment must balance compulsion

What to watch out for in the Q4 earnings season

Investing insights from our research team:

SastaSundar Ventures -- Turnaround in the making

Grauer & Weil (India): A high quality business available at attractive price

Can Equitas continue to outperform its peers?

Technical picks:  Bank Nifty, PNB, Tech Mahindra and IndusInd Bank (These are published every trading day before markets open and can be read on the app)

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Ravi Ananthanarayanan

Moneycontrol Pro