As we know, India is witnessing a devastating surge in Covid-19 infections. Our healthcare systems have collapsed, and the vaccination rate is extremely low. The strict localised lockdowns and curfews imposed across the country have led to disruptions in economic activities. The overall state of affairs in our country has become very grim.

So far, stock markets seem to be largely unaffected by the ground reality of our economic conditions. Nifty had even registered strong weekly gains despite major uncertainties or negative sentiments. In this article, we shall analyse major factors that threaten the economic recovery of our country. Let us also look at some of the factors that have made stock markets immune to the impact of the second wave. More importantly, will this sustain? 

Triple-Mutant Variant of Covid-19 in India

On May 10, the World Health Organisation (WHO) classified the highly contagious triple-mutant Covid-19 variant spreading in India as “a variant of concern”. This indicates that it has become a global health risk. The variant, known as ‘B.1.617’, has proved to spread more easily than the original virus. The WHO believes it is this variant that is driving the deadly second wave of the Covid-19 pandemic in India. Several reports indicate that the triple-mutant variant might not get detected by an RT-PCR test. Moreover, there is no concrete evidence that the current Covid-19 vaccines and medicines are effective against the deadly variant. 

However, vaccines help prevent people from getting really sick and from going to hospitals. It protects us from getting a serious illness from all types of Covid-19 variants. Thus, it is vital that all citizens get vaccinated as soon as possible.

Our country continues to record over 3 lakh daily infections, and our healthcare infrastructure is completely overwhelmed. According to data compiled by John Hopkins University, only ~2.52% of the entire population is fully vaccinated. These are truly worrying figures indeed. To curb the spread of the virus, almost all states of India are under total or partial lockdown.

Economic Indicators

India was on a great path towards economic recovery until the second wave of Covid-19 hit the country. While the Centre has not announced a nationwide lockdown, close to 98% of India is under some form of lockdown or strict curfew. As a result, economic conditions have been worsening gradually. Businesses are forced to be shut down. Lakhs of people are being admitted to hospitals across the country, and our healthcare system has been compromised. There are major disruptions in the supply of essential items, including medicines. Corporates have been diverting their industrial resources towards the production of medical oxygen. Many companies have temporarily shut down production, which would affect the livelihood of contract workers.

On May 11, rating agency Moody’s slashed India’s gross domestic product (GDP) forecast for the financial year 2021-22 (FY22) to 9.3% from the earlier projection of 13.7%. They have reported that the second wave of Covid-19 could slow the country’s near-term growth recovery.

There were several positive economic indicators such as strong GST revenue collections and exports in April. Manufacturing PMI for the month also remained stable at 55.5, which is in the expansion zone. Overall domestic vehicle sales declined 30% in April when compared to March. However, with strict lockdown restrictions, these figures are likely to come down further in May.

Strong Q4 Results and High Optimism

While most economic activities have been deeply affected by lockdowns, sentiments in the stock markets have remained confident and optimistic. Nifty had even shown healthy gains for four consecutive trading sessions (May 5-May 10). A primary reason for this could be due to strong Q4 results being posted by major companies. Many blue-chip companies posted better-than-expected results for the January-March quarter. Some of these firms are confident that their financial performance would improve even further in the upcoming quarters. Stock market participants have placed their bets on certain strong companies and are hoping that they will perform well in the future. Due to these factors, many investors have looked beyond the distressing Covid-19 crisis in India. We have seen many fundamentally strong stocks showing a rally before/after their Q4 FY21 results being announced.

On the other hand, prices of major commodities such as steel and copper have been surging due to high demand. Investors have been pumping huge amounts of money into companies in the metal sector due to the prospects of better returns in the future. This is why the Nifty Metal Index (and the stocks included in it) had rallied to record highs over the past month.

Boost from RBI

On May 5, the Reserve Bank of India (RBI) announced a series of measures that brought cheer to the stock markets. These were primarily aimed at supporting individuals and small businesses, as well as those entities in the healthcare sector. The central bank announced a Rs 50,000 crore Term Liquidity Facility to ease access to emergency health services. Banks would provide loans at low interest rates to essential services that are working to mitigate the Covid-19 pandemic. This includes vaccine and drug makers, testing labs, producers of medical oxygen, and hospitals. The RBI has also announced measures that boost lending to Micro, Small, and Medium Enterprises (MSMEs). 

Banks and financial institutions have also been allowed to modify and extend the moratorium period for loans under RBI’s Resolution Framework 1.0 for up to two years. This will help lenders to keep non-performing assets (NPAs) off their balance sheets for the time being. As per reports, banks will be protected against asset quality issues for the next 12-24 months.

Stocks in the banking and financial services sector showed strong gains after RBI Governor’s speech. The Nifty Bank index was up 2% on the same day. You can read our detailed coverage of the measures introduced by RBI here.

DIIs Showing Strength in the Market

Over the past month, Foreign Institutional Investors (FIIs) have been pulling out money from the Indian markets. This has been due to the negative sentiments regarding the sharp rise in Covid-19 cases in India. Most states have imposed strict lockdowns and curfews, which has ultimately impacted overall economic activity. Market experts have warned that if the situation persists, FIIs could continue to sell.

However, even though FIIs have been selling continuously, Nifty has not witnessed a significant fall. This is because Domestic Institutional Investors (DIIs) have helped the markets to stay afloat. They have continued to buy even as FIIs sell. While FIIs net sold shares worth Rs 12,039.43 crore in April 2021, DIIs net bought shares worth Rs 11,359.88 crore. Markets have been remaining in a tight range in May, with both FIIs and DIIs taking an opposite stance. 


The triple-mutant variant of the novel coronavirus formed in India poses a major threat to all economic activities. According to experts, our country is yet to witness a peak in daily cases. Lockdowns are likely to be extended in those states that have a higher positivity rate. We are going through highly uncertain times, and the situation is likely to become worse in the coming months. 

Stock markets do not like uncertainty, and the level of 15,000 continues to be a strong resistance in Nifty. Any positive sentiments shown by investors would ultimately depend on whether India’s Covid-19 infections decline. The rate of vaccinations would also have to improve significantly for businesses and industries to reopen. We would have to wait patiently to see if the measures introduced by RBI to support banks and essential services are implemented effectively. On the other hand, if DIIs also start selling (or book their profits), we could observe a fall in our markets. 

Let us look forward to seeing how the situation unfolds in the days to come. Until then, take safe trades after a deep analysis or understanding of the markets. Keep a close watch on global cues as well. On a more important note, make sure you stay safe and stay home.