Flattening of COVID-19 curve gives hope for economic revival, equity markets to remain volatile, says expert

The flattening of COVID-19 curve has brought some good news for investors with Sensex jumping by 997 points and Nifty reclaiming the 9,850-level on Thursday. The stock markets were in green for the fourth straight session. Sensex settled 997.46 points or 3.05 per cent higher at 33,717.62 while NSE Nifty soared 306.55 points, or 3.21 per cent, to 9,859.90. 

While there are positive signs for the economy, the equity markets are expected to remain volatile in the coming weeks, believes Shibani Sircar Kurian, Executive Vice President, Fund Manager & Head- Equity Research, Kotak Mahindra Asset Management Company.

“Markets this week rallied from the lows seen in March 2020. After almost a month of lockdown the world over, early signs of easing of the same along with some signs of the flattening of the COVID -19 curve spurred hope of economic activity resuming albeit at a slow pace. Some promise of a possible cure with positive preliminary results of a few drugs also added to hope and optimism,” Shibani said. 

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She added that Central banks across the world have joined hands to pump in liquidity in order to keep economies afloat. The US Fed kept interest rates near zero and stated that it would be willing use all necessary tools and act as appropriate to support the economy. Meanwhile, data from China seems to suggest some resumption of economic activity as the government eased the lockdown. 

“RBI too announced a version 2.0 of the long term repo operations of Rs 500 bn to extend a liquidity window to the banks aimed at specifically smaller NBFCs and Microfinance institutions. Banks availing funds through this window should invest in investment grade bonds, commercial paper, and non-convertible debentures of NBFCs, with at-least 50% of the total amount availed going to small and mid-sized NBFCs and MFIs,” she said.

A booster shot will be given if the government decides to issue some relaxation when the ongoing phase of the lockdown ends on May 3. However, the markets are unlikely to be stable till a cure is found for the virus.

“Equity markets could remain volatile until market participants are able to assess the actual impact of the lockdown on economic activity and a definitive cure/vaccine is found for the virus. There are signs of resumption of economic activity in India especially in districts where the incidence of COVID has been limited. This is a positive. However, it will be a slow and steady road to recovery from here on and it will take some time for economic activity to come back to normalised levels,” she said.