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During the pandemic, we saw some unprecedented moves by the Government, such as the lockdown, which brought the entire economy to a standstill. As a knee-jerk reaction, markets did fall by 38%, however, exhibited resilience. It would be interesting to trace the journey of equity markets in India through the pandemic. 

Effect of Covid on the stock market

Unlike the sub-prime crisis which was a systemic risk (risk arising from within the system), Covid is a cyclical risk, the reactions and rebound timeline have been different in both cases. The markets have shown resilience in both situations, however, in the case of covid, even though the country continues to report a high number of cases/deaths and with expert predictions of yet another wave, the markets continue to reach new highs.

The ability of the entire country to adapt quickly and continue its business operations has been remarkable. This has increased the foreign countries' desire to regain faith in the Indian economy. 

Many companies continued to run their operations by leveraging on technology and others at reduced capacity. There was a drastic improvement in margins for most of these companies due to lower fixed expenditure. 

Many service industries reported better utilisation rates and productivity of employees. This is reflected in the quarterly results as well. 

Many experts also indicate that the lockdown did not essentially impact the large/medium-sized companies.  

Smaller enterprises could not switch over to a digital space or strategize to cut their costs immediately. 

Companies that depended on the supply of raw materials were impacted severely during the lockdown. It is for this same reason that one has to remain cautious whilst investing in smallcap companies. 

Some of the macroeconomic indicators such as the unemployment rate, the inflation rate have remained under stress. Likely, the banks and other financial services companies which are into the lending business could have high NPAs in the future, on the backdrop of extended moratorium by RBI. However, it is evident that Indian stock markets have shown strength during many downcycles and will evolve and emerge with greater strength. 

Has Covid changed the way you look at the stock market?

The pandemic has drastically changed the way an average investor looks at the stock market as the stock market continues to scale new highs alongside new waves /highs being set by Covid! It is quite astounding that an economy of our size has been able to adapt so quickly and continue business as usual even during such an adverse situation. The pandemic has reposed faith in the idiom that ‘This too shall pass'.