The Indian markets seem to be riding the second wave of Coronavirus confidently although it has derailed the economic activity to a certain extent. Economic outlook and GDP forecast have been revised by various rating firms which led to an interim correction in various sectors. However, it looks like investors have used this dip as opportunity to invest in companies and sectors they have been eyeing on.
Almost all the sectors have contributed to the rally of the benchmark index as we have witnessed good amount of rotational buying in the recent times. Strong results posted by major companies in Q4, 2021 is a key reason behind market optimism. The robust results season has allowed investors to look past the upsetting Covid-19 problem, which is expected to stymie economic recovery in the short term.
Second wave of Covid-19 and Investors
Companies seem to be optimistic about business profitability increasing in the next quarters. Investors are optimistic that most of the companies will continue to perform well in the future, well beyond the second Covid wave, based on the excellent earnings season and comments.
Many commodities, such as steel and copper, are currently in great demand. As a result, investors are pouring money into such commodities and related businesses in the hopes of better future returns. Positive global cues play a role as well. The growth in Covid-19 cases in India has been overshadowed by the rising global demand outlook, rising commodities prices, and the availability of finance.
Second wave of Covid-19 and Investors
The Indian economy is unlikely to take as severe of a damage as it did last year, especially since much of the country's industrial output remains operational. The 2020 drop was a knee-jerk reaction, and the current market has already discounted it, so an uptick in the near term is likely.
Effect of Second Wave of Covid-19 on Market Sectors
The hospitality and transportation sectors of the Indian economy appear to be the most vulnerable. Manufacturing and IT spending have picked up speed. While sectors such as chemicals and fertilizers, pharmaceuticals, IT services, FMCG, and telecom have great potential, banking, media, real estate, retail, and engineering may suffer depending on the intensity of the lockdown.
Pharma Sector
In 2020, the pharmaceuticals industry was one of the best-performing sectors on the stock market. There are strong hopes that the sector will remain in focus in 2021, as demand for life-saving pharmaceuticals and immunity-boosting supplements continues to rise, and people are more focused than ever on purchasing healthcare products. Furthermore, with the vaccination campaign in full gear, there is a significant opportunity for listed pharmaceutical businesses as India prepares to welcome many more vaccine types.
Telecom Sector
During the global pandemic, one of the most crucial services and sectors was telecom. Because existing consumers' demand for bandwidth is predicted to increase, telecom will likely continue to be one of the best-performing industries.
Banking Sector
Banking stocks might be under pressure due to lower loan offtake under recessionary market conditions, as well as a cautious consumer perspective, which will have an impact on bank profits. The impact on the agricultural sector as a whole should be minimal. The impact is anticipated to be minimal because states have agreed that seeds come under the basic category. Furthermore, save for logistics and port clearances in India, there is anticipated to be less impact on the sector due to existing inventories of fertilizers.
Aviation and Hospitality Sectors
During the first wave of Covid-19, aviation was one of the worst-affected sectors, and the situation in the second wave is gradually deteriorating as limitations increase. As a result, the days ahead do not appear to be favorable for aviation. The same may be said for the hospitality industry. Therefore, investors are advised to maintain stock specific approach and invest in a staggered manner.
The economy may appear to be in doldrums, but the markets are sailing through the second wave of Covid-19 very strongly unlike the first wave. There has been a great rally in the benchmark index and almost every other sector has contributed for it. For more updates on the effect of Covid-19 on markets, get in touch with a SEBI registered investment advisor now.
Happy Investing!
