The rapid leap out of, and then back into, a bull market underscore the high volatility that domestic equities have seen in the past two months as the coronavirus pandemic brought the global economy to a near halt. From their multi-year lows on Mar 12, both the benchmark indices have surged over 20% led by resurgence in appetite for riskier assets like equities and a bout of short covering at home by foreign portfolio investors. The sentiment in the market was completely opposite last week as equities capitulated last week on evident signs that the global economy was headed for a recession as countries moved to lock down cities and industrial hubs to contain the spread of the pneumonia-inducing virus. While equities have entered a bull market on technicality, sentiment among investors still remains one of shock and awe as they digest the rapid swing in their fortunes over the past two months.
Money managers cautioned that layman investors should not tread these choppy waters as stability has not yet returned to stocks as indicated by the volatility gauge, India VIX, which still trades near its 12-year highs. Economists expect the Indian economy to see a sharp contraction in the June quarter as a result of a 21-day lockdown of the country to contain the viral infection. Brokerage firms such as Barclays India and Nomura Financial Advisory and Securities India expect economic growth in 2020-21 (Apr-Mar) to contract sharply from 5% expected this year. Market participants believe if the infection persists longer-than-expected then it could seriously cripple consumption in the economy because of a large swathe of the work force being driven out of the labour market. However, in certain pockets of the market, money managers have said the risk-reward for investing in domestic equities have turned extremely attractive as Nifty 50's price-to-earnings based on one-year forward earnings has fallen to near-decade lows.
"From a market perspective, risk-reward appears attractive for India, but only if we presume the negative impact of COVID-19 is short-lived and not crippling," said Gautam Chhaochharia, head of India research at UBS Securities India, in a note. The brokerage firm expects the Nifty 50 to end the year at 10000 points, implying further gains of another 16% from the current levels, but still down 18% for the year. At 0934 IST, the Nifty 50 index was up 4.4% at 9025.30 points, while the BSE-Sensex was at 31038.21 points, up 3.6%.