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Prime Minister Narendra Modi has announced the extension of the lockdown till 3rd May. Indian stock market will be under pressure when it reopens for trading on Wednesday. Markets were closed on Tuesday, 14th April 2020, on the occasion of Dr. B.R. Ambedkar Jayanti.
While the move is essential for bringing the spread of Coronavirus under check, it does not augur brightly for stock markets.
Relaxation will nevertheless be permitted in areas that play an important role in the fight against the novel Coronavirus. An assessment will be conducted for a week, for the areas and districts where it is possible to introduce the relaxations.
The 21-day lockdown was earlier scheduled to end on 14th April 2020, before an extension was announced up to 3rd May. COVID-19 cases in India have gone past 10,000 on 14th April, and it is important at this juncture to make sure that the gains achieved to date are not erased.
The degree of pressure that the markets will face is difficult to define. It is, however, important to note that the markets are facing a thin volume in any case. The participation at this time is best not defined as meaningful.
Economic activity is rescheduled to start from April 20th, 2020, but in a phased way. One of the bright points is that harvesting activity is already underway in rural India in a controlled manner.
If we consider the YTD stats, Sensex and Nifty are both down, by 25.61 and 26.09% respectively. Coronavirus has induced a return to safety.
Markets, over recent times, have been volatile. While they have kept a watchful eye over the spread of Coronavirus, they have also taken cues by the stimulus presented by the central and state governments.
The reduction in risks has resulted in Foreign Institutional Investors (FIIs) selling a net of $6.6 billion Indian shares in the year-to-date period.
The extension of the lockdown period does not come by as a surprise to numerous entities in the financial markets. They were expecting the development of this nature. Several experts have the opinion that the development is unlikely to bring with it an incremental impact.
A few of the factors that will impact the markets, nevertheless are more people being reported for Coronavirus on a global scale, and the people who were cured being tested positive again.
Markets, at this time, lay hopes over stimulus measures on the behalf of governments. If the stimulus comes soon enough, it will safeguard the markets against damage.
There is optimism on the horizons
PM Modi is presenting a roadmap for recovery, which is a positive aspect of stock markets. Short term developments ruled aside, the markets are unlikely to suffer over the long term.
The biggest fear currently, from a generic point of view is another round of Coronavirus, which is necessary to overcome with the extension of the nationwide lockdown.
Certain stocks are flourishing at this time
Pharmaceutical companies are continuing their rally, with S&P BSE Healthcare index reaching a 52 week high, backed by positive developments in the sector. The government has lifted restrictions over the export of numerous active pharmaceutical ingredients at this time.
Similarly, Larsen & Toubro (L&T) saw a rise of 6.57% to Rs. 866 on the BSE. This was after L&T announced winning major contracts for its distribution and power transmission business.
If we consider the commodity markets, oil prices have gone negative. The gains made after major producers mutually agreed over record global output cuts have hence been erased. There are concerns that the cuts will not suffice for heading off oversupply after Coronavirus boosts demands.
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