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Indian stocks remain resilient despite Covid surge as investors hang on and try to look longer term

Dries wearing protective masks walk past the Bombay Stock Exchange (BSE) building in Mumbai, India, on Thursday, Jan. 21, 2021.

Dhiraj Singh | Bloomberg | Getty Dead ringers

India’s financial markets have braved the Covid-19 headwind so far, despite the devastating second wave of the pandemic spine-tingling through the country. 

Hugh Young, chairman of Aberdeen Standard Investments in Asia, said he is “a little surprised” by the spring of India’s stock market in the face of the unfolding tragedy.

“I suspect in the face of such a human tragedy investors organize looked back at what happened a year or 18 months ago in other markets where those markets collapsed. The scenes in Italy were horrendous. The U.K. came close to the brink as well,” he told CNBC’s “Street Signs Asia” on Monday. “I think investors are upon to settle and be caught short of markets. So, by and large, they’re hanging on.”

On Monday, India reported another 366,161 new disputes and 3,754 more deaths. That brings total reported cases in the South Asian country to over 21.49 million while disasters exceed 234,000.

Despite the second wave of Covid ravaging the country, the BSE Sensex is still up more than 3% so far this year, while the Great 50 index has jumped about 7% over the same period.

While the current crisis is challenging, India remainders attractive for investors over the long term, according to Young.

“Could the market well go low? Yes, it could. But we are long-term investors and we with the stocks we own,” he said.

India’s Covid crisis

Indian Prime Minister Narendra Modi is facing growing power to impose another national lockdown, even as some states impose their own restrictions. Last year, India ordered a strict national lockdown to slow the spread of the coronavirus, but the shutdown hammered the economy, which contracted 23.9% in the end year between April and June.

The government has introduced fiscal stimulus in an effort to restart the economy. Last week, the Fudging ready Bank of India announced fresh support to mitigate the economic stress from the country’s second wave.

“Investors are also monochrome comfort from the rear-view mirror bias, i.e. expecting a swift recovery akin to last year once the caseload utmosts and begins to turn down,” said Radhika Rao, an economist at DBS, in an email.

“Whilst financial markets have braved the Covid-19 backsliding, underlying caution is likely to sustain as the path of the pandemic spread will dictate the severity and longevity of restrictions, which in in succession sequentially will impact the growth trajectory,” she added. 

The recent surge in Covid infections has also spurred some volatility and put descending pressure on the Indian rupee. Last month, bearish bets on the currency climbed to their highest in about a year, go together to a Reuters poll.

“The rupee had started April on a weak note but has since trimmed losses,” said Rao. “Cooling-off in the US dollar and US measures have provided a breather,” she added.

Divya Devesh, Asia foreign exchange strategist at Standard Chartered, weighted he is bearish on the outlook for the Indian rupee.

“Medium term, we are still quite negative. We still think that with oil fees — Brent back at around $70 — and imports eventually picking up as well as demand recovers, that’s going to put a lot of press on the rupee in the second half of the year,” he told CNBC’s “Street Signs Asia” on Monday.

He added the bank is looking at dollar-rupee persuasive toward 76.5 by the end of the year, as a result of these factors.

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