Indian Market May Recover on Better Visibility of COVID Vaccinations (1st Dose)

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Indian Market May Recover on Better Visibility of COVID Vaccinations (At Least 1st Dose)

India’s benchmark stock index Nifty (NSEI) closed around 14677.40 Friday; closed almost flat after recovering from a deep plunge on positive global cues and improving the visibility of India’s COVID vaccinations. On Thursday, while the Indian market was closed for a holiday, global cues were negative on higher bond yield amid hotter than expected core inflation in the U.S. On the early U.S. session, Thursday, Dow Future tumbled and SGX Nifty Future (IND50) made a low around 14456.75, plunged over -250 points from Wednesday’s closing Nifty Future levels.

But Dow Jones 30 Futures , as well as SGX Nifty Future (IND50), recovered soon on the fading concern of runaway inflation in the U.S. after core PPI (producer price index), flashed almost flat sequentially (m/m). Also easing of record-high commodity index helped to taper inflation concern and bond yield slips slightly. Subsequently, on Friday, India’s Nifty opened around 14747.95, made a low 14592.15 and then rebounded to close around 14677.80 in line with Dow Future volatility.
Various Fed officials have been suggesting that the U.S. central bank has no intention to withdraw its monetary (pandemic) stimulus in a hurry, at least in 2021. On Thursday, new Fed board member Waller also helped calm inflation jitters by saying the central bank would need several more months of data before assessing economic progress.

The Fed may go for QE tapering from Dec'22 with advance intimation by Sep'22 or earlier and gradual rate hikes from Dec'23 (will indicate the same through Dec'22 dot-plots) to keep U.S. government borrowing costs lower to fund the deluge of COVID stimulus. All Fed action will depend on the progress of herd immunity and Fed's dual mandate (as per Fed's judgment) as well as Biden's passage of $4T new fiscal stimulus (infra + social care) and TSY debt issuance of the same. COVID is an extraordinary situation and thus requires extraordinary resolution; this is not normal times and the world has to go for a great reset.

From global to local front, Indian risk trade sentiment improved amid better visibility of COVID vaccinations as the government assured almost 200B doses through Aug-Dec’21 amid higher domestic production and import. Indian pharma major DRL will soon start the distribution of the Russian COVID vaccine Sputnik. India may also use another Russian COVID vaccine Sputnik Light (single dose) after June.

Indian authority has also delayed the 2nd booster dose of the COVIDSHIELD vaccine from earlier 6-8 weeks to 12-16 weeks (from the 1st dose). Although the step is intended to cover the supply gap, it will also help at least 1st dose COVIDSHIELD (Astra-Oxford) vaccinations for a higher number of people, which will provide them at least 70-80% safety against the invisible enemy (coronavirus). India now has to prudently use available COVID vaccine supplies to vaccinate maximum people with at least 1st dose.

Big picture:

The economic recovery will depend on the COVID vaccinations curve. At the present anemic pace, it may take 4-5 years to vaccinate 40% of the Indian population. India needs to vaccinate 80% of its population for trusted herd immunity, public/admin confidence and normal economic activities. If we consider only one dose of the COVID vaccine, India is now able to inoculate around 3% of its population in one month. If the 2nd dose is delayed and the 1st dose is prioritized, India may be able to vaccinate around 6% of its population in one month. So, in that scenario, India can inoculate almost 60% of its huge population by the next 10-12 months; i.e. by H1-2022.

This single-dose vaccination strategy for accelerate partial herd immunity may be a game-changer in the COVID endgame. But at the same time, we need to see the actual implementation of this strategy (preferred 1st dose). If happened, it will also ensure equal distribution of vaccines, considering India’s constraint, limited supply of vaccines and chaotic vaccination process amid horrible COVID death tsunami and complete breakdown of the healthcare system.

And if India can ramp up its COVID vaccine stocks after June’21, it may be able to vaccinate around 10-15% of its population with at least a single dose (70% protection), which will help to flatten the COVID curve significantly. This will be a game-changer. At present India can fully vaccinate (two doses) only around 0.70% of its population in a month on average.

Although almost 50% of India is now under full /stricter and the rest under partial COVID lockdown, the impact on the Indian market is relatively light as the Federal/Central government has not called for an all-out national lockdown like last year. Last year, the impact of COVID lockdown on the stock market was far higher as there was a complete shutdown, both locally and globally. This time global cues are positive on the rapid progress of COVID vaccinations on both sides of the Atlantic (U.S.-Europe). Also, the Indian market is expecting that the parabolic COVID curve may be plateauing soon and COVID vaccinations may be ramped up in the coming months from the current tepid pace.

In brief, the market is assuming that the worst of the 2nd COVID wave may be over and going forward, there should be a gradual improvement. As the stock/financial market always discounts the future, Nifty already corrected by over 1300 points from the lifetime high and is now consolidating/distributing for the next phase of move depending on the underlying COVID curve and any national lockdown or not. Having said that, an all-out national lockdown 2.0 for a few weeks is still a possibility, but considering better visibility of India’s COVID vaccinations roll-out plan (single dose preference), the market may not correct sharply.

On the macroeconomy front, India’s headline CPI eased to +4.29% in April (y/y) from +5.52% in March, in line with market expectations and lowest in three months. CPI was mainly dragged by food, while boosted by fuel & energy. India’s core inflation also dropped to a 10-months low at +5.25% in April from +5.96% recorded in March.


Although on a y/y basis, India’s inflation eased mainly due to favourable base effect, on a sequential basis (m/m), CPI jumped +0.70%, almost double of average +0.35%. This shows the underlying price pressures are expected to prevail amid the COVID 2nd wave tsunami and fresh lockdowns/restrictions across the country, which once again led to supply chain disruptions, impacting price stability. The seasonal factor would be pushing up the price of vegetables and lead to higher inflation. Also, global commodity prices have been firming, feeding into input costs. In addition to this, transportation and logistics costs would be sustained at elevated levels due to abnormally high transportation fuel costs.

If the sequential inflation average around +0.50% (m/m), it may translate to +6.00% annual inflation (CPI) in the coming days, much above RBI projections. Thus theoretically, RBI has no space for further cuts and the only monetary vaccine left is now QE-Lite. But the question is whether it will help to bring down 10Y bond (GSEC) yield meaningfully below 6% amid elevated inflation?

Under the current state of full/partial lockdowns across India, the GDP may contract by around -0.50% per week. There are reports of increasing household loan defaults as a result of India’s COVID tsunami. Already various global rating agencies are cutting their previous forecasts of high GDP growth for FY22. Global rating agencies and FPIs are also cautious about India for its worsening fiscal position, ability to implement structural reforms as narrated in the recent budget and probable political headwinds amid plummeting popularity of PM Modi for COVID mismanagement. Thus now the need of the hour is to accelerate India’s COVID vaccination process meaningfully to flatten the COVID curve sustainably.

On Friday, the Indian market was dragged by metals (lower commodity prices globally), realty, automobiles (most of the domestic showrooms are closed due to COVID), banks & financials (concern of elevated COVID NPA), media, pharma (subdued report card), IT/techs (lower USDINR ), infra and energy. The market was boosted by FMCG (higher demand for essential items during lockdowns).

Nifty was helped by Asian Paints (NS: ASPN ) (upbeat earnings and guidance), ITC (NS: ITC ) (hopes of a blockbuster report card and COVID beneficiary), RIL (R-Jio optimism/two special offers), HUL (FMCG appeal), and L&T (NS: LART ) (hopes of an upbeat report card). Nifty was dragged by HDFC Bank (NS: HDBK ), Infy, TCS (NS: TCS ), Tata Steel (NS: TISC ), and HDFC (NS: HDFC ).

Technical View: Nifty and Bank Nifty Future

Technically whatever may be the narrative, Nifty Future now has to sustain over 14850 and Bank Nifty Future 33200 levels for a further rally; otherwise except some corrections below 14600 and 32390 levels.

Ind50 (SGX Nifty Future)

Bank NIFTY Futures

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  • mukesh patel @mukesh patel
    bull done
    Like 0
  • mukesh patel @mukesh patel
    bull done
    Like 0
  • Rushikesh Khandagale @Rushikesh Khandagale
    Your articles are best. Nice content
    Like 0
  • Purushotham Singh @Purushotham Singh
    u r article is bull *******go and see reality and then write
    Like 0
  • Ezhil mani @Ezhil mani
    Too optimistic
    Like 1
  • sumantra chabri @sumantra chabri
    Like 0
  • Equity King @Equity King
    Indian government is concealing so many deaths, there is less testing of corona, stimulus packages given during first wave of corona, no common people got benefited except 1k rupees and some grain. There is no bed in hospital, due to lack of oxygen patients are dying on the road but everything is OK on the paper. Market always loot common people by dreaming that all is well. Everyone, like you, also narrating same thing but the reality is far beyond from this.
    Like 5
  • Deepak Chaudhary @Deepak Chaudhary
    only short all index as vaccination drive is a lie and gdp will be manipulated in numbers recently any how gdp is not going above 4 this year too
    Like 0
  • Ganesh Goou @Ganesh Goou
    Like 0
  • Mitesh Kapadiwala @Mitesh Kapadiwala
    Like 0

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