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Markets upbeat amid mixed signals during second wave

One of the obvious reasons, analysts say, to not get swayed by the highs and lows of market indices is because investors tend to react based on forward-looking events rather than past or current ones.

Published: 11th May 2021 12:32 AM  |   Last Updated: 11th May 2021 07:57 AM   |  A+A-

Finance Minister Nirmala Sitharaman

Finance Minister Nirmala Sitharaman (Photo| ANI)

Stock markets are so sensitive that even anticipated negativity can slaughter investors’ spirit on the spot. Yet, benchmark indices in India, which is witnessing a severe second wave, aren’t really giving a whit about the unfolding human tragedy. Agreed, markets are all about entities, but to sideslide the economic scarring due to Covid-19 is rather surprising. Last week, the Ministry of Finance noted that the impact of the second wave will be muted, which perhaps may have emboldened markets to remain upbeat. Worryingly, high frequency indicators are giving mixed signals. Electricity consumption maintained its trendline growth, and e-way bills were indicating rising GST collections. In contrast, consumer demand is hitting new lows. Trade bodies have warned about a 70-80% decline in auto sales this month with all states (excluding Telangana) under total or partial lockdown.

One of the obvious reasons, analysts say, to not get swayed by the highs and lows of market indices is because investors tend to react based on forward-looking events rather than past or current ones. Estimates peg earnings and profits of listed companies for the next few quarters to be rosy anticipating high demand post lockdown. We have seen this happen last year, where pent-up demand rang up cash registers, raising hopes of normalcy and growth rebound. Sadly, the second wave is now threatening to punch the lights out.

The government’s read on the muted impact in Q1 could well be true, but what’s undeniable is that not only does economic recovery get delayed, we also run behind schedule to return to pre-pandemic growth levels. Moreover, the goal for India is not just reaching pre-pandemic growth rates, but the levels seen before as the country suffered an acute slowdown in FY20, though the government was in denial throughout. This will have untold implications on unemployment and income inequality, with initial estimates pegging about 230 million being pushed into poverty. The government must pull out all the stops and prepare not just to contain the second wave, but also to mitigate the third wave, if any



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