How Have Equity And Bond Markets Fared Since The Lockdown?

The world looks like a completely different place today than it did maybe forty days back. The novel coronavirus that swiftly spread to countries across the globe has had an unprecedented impact on humankind. One of the biggest fallouts has been the ramifications of a nationwide lockdown on economic activity. On March 24, 2020, India announced a nationwide lockdown for 21 days. This was subsequently extended to May 3, 2020. As a consequence the economic activity has come to a virtual standstill. The economic losses stemming from the virus are likely to be huge. While the future remains uncertain it would be interesting to map the behaviour of benchmark indices, bonds yields and the Rupee since the lockdown.

Benchmark equity indices

In the weeks leading up to the lockdown, benchmark equity indices in India were trading under immense pressure and had corrected sharply. To put this in perspective, for the period March 2, 2020 to March 23, 2020, benchmark indices were down by ~32 per cent. However, since the lockdown, equities have witnessed a modest recovery, gaining approximately 23 per cent in the one-month period since the announcement of the lockdown. Despite the increase, it is important to note that the increase has been unsteady checkered with strong bouts of volatility. The rise in the markets can mainly be attributed to investor expectations with regard to the announcement of a government stimulus package to revive the economy. 

Yields

Bond markets have witnessed more than their share of volatility as extreme risk aversion and safe haven demand led to a decline in GSec yields during the last month. The benchmark 10 year GSec yield has fallen by 32 bps in the last one month. The fall in yields was perpetuated by a host of factors including rate cuts but the Reserve Bank of India (RBI), OMO operations, surplus liquidity in the banking system and expectation of additional measures by the RBI to support the relief measures already taken by the government. Nonetheless, a sharper fall in yields was stemmed by expectations of an increase in government borrowings to fund it stimulus programmes and the consequent increase in supply of government securities over and above the budgeted high borrowings

Rupee 

The Rupee fell to a record low of ~77 against the US Dollar in the last month. The weakness in the rupee during the last one month has mainly been on account of a strong US Dollar which continues to bask in its safe haven appeal and sharp foreign portfolio outflows from the Indian equity and debt markets.