COVID-related pressure kept much of India under lock-down in May and part of June, pressuring end demand. What is the current state of COVID-19 restrictions in India?
It’s still a very fluid situation in India. The crisis of the second wave which started at the end of March began to ease somewhat after many state governments imposed localized lockdowns in the most affected cities and towns. While localized lockdowns in some parts of the country have continued, there are certain cities where vaccinations have increased, and as a consequence, people are feeling more comfortable stepping out and activity, mobility has normalized rapidly in the months of July and August. However, it’s still a volatile environment given the fear of a third wave.
Indian equity markets have been fairly resilient despite a vicious second COVID wave, punchy equity valuations and higher-than-normal inflation outlook. What were the drivers to performance?
Indian equities have provided positive returns through August despite many adverse economic events. In part, this is because many Indians are diverting their financial savings from fixed deposits to equity markets given the low interest rates prevailing in the economy despite high inflation. As a result, the number of individual brokerage accounts have doubled in the last 12 months.
In part, it is also the favorable monetary policy environment that has existed in the country over last 18 months. The central bank has remained dovish with their monetary policy stand and as a consequence the cost of capital in the country is currently at the lowest in the past 10-12 years. This clearly has had a favorable impact on asset valuations, equity markets included.
Additionally, a pro-growth budget presented by India’s central government, with an emphasis on higher infrastructure spending in the coming years, helped boost consumer confidence.