Impact of Second Wave on Stock Markets

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Is Emerging Market losing its pace in comparison to Developed Markets? Read our 3 point analysis to know more about the impact of the Second Wave of Covid-19 on the stock market and a brief comparison between Emerging Markets and Developed Markets.

Introduction:

We will be doing a 3 point analysis for the matter that Whether Emerging Markets are losing their pace, which are:

Are Emerging Markets Losing Pace- 3 Point Analysis
Are Emerging Markets Losing Pace- 3 Point Analysis

Emerging Markets Vs. Developed Markets

1) Comparing Performance of MSCI World, MSCI EM Indices.

  • We will compare the performance of MSCI World and MSCI EM Indices in 2 phases. The first phase will be the comparison of the performance of both the indices between April 13 2020 to February 26, 2021, and in the second phase, performance will be compared between February 26, 2021, till April 14, 2021.
  • In the first phase, MSCI Emerging Market Index has outperformed MSCI World Index.
  • In the first phase, if we compare the performance of the last 1 year of both the indices, then the MSCI World Index has delivered a return of 39..4% while in the same period, MSCI EM Index has yielded returns of about 51.6%.
  • Meanwhile, Nifty 50 Indices have outscored both indices by generating returns of 61.5% in the same phase.
  • Hence, between the period of April 13, 2020, to February 26, 2021, MSCI EM Index has outperformed World Index by 12.2% backed by the scope for Higher Earnings Upgrades.
  • Whereas in the second phase, MSCI World Index has outpaced the MSCI EM Index by 7.9%.
  • World Index has generated a return of 6.6% in 2-2.5 months in the second stage and has remained in positive territory.
  • While returns of the EM Index, MSCI India Index and Nifty 50 have remained in negative territory and were down by 1.3%, 2%, and 1.5% respectively in the second phase.
  • Overall, MSCI EM Index, MSCI India Index, and Nifty 50 have outperformed MSCI World Index by nearly 8% in the last 2 months.
Comparing Performance of MSCI World Index, MSCI EM Index & Indian Equities
Comparing Performance of MSCI World Index, MSCI EM Index & Indian Equities
Comparing Performance of MSCI World, MSCI EM & MSCI India Indices
Comparing Performance of MSCI World, MSCI EM & MSCI India Indices

2) Why Appeal of Emerging Markets is Fading?

The slow pace of Vaccination amid the emerging risk of a new wave of the pandemic.
  • Looking at the current rate of Vaccination, it seems that Developed Countries like the US and the UK may require about 4-5 months to vaccinate 75% of the population.
  • Comparatively, the vaccination drive in emerging markets like India and China is slow and this might take 15-16 months to vaccinate 75% of the population and for vaccination of 100% population, this economies may take nearly 2 years.
  • Hence, the Developed market may show investors’ preference due to the lead in vaccination.
  • Thus, Emerging Markets specifically countries like India need to accelerate the pace of vaccination in the country.
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iii) Nifty 50 Index Performance over the last 1 month and FII Flow:
  • In the last month i.e., between the period of March 12, 2021, to April 12, 2021, the Nifty 50 Index is down by nearly 5%.
  • The reason behind this was Reversal Trend in the FPI Inflow as there was an outflow of FII of Rs. 1,348 Cr. in April 2021.
  • Whereas in the past 6 months there was a continuous inflow of FPI investment in the index. FPI Inflows for the previous 8 months are as follows:
Nifty 50 Index Performance over the last 1 month and FII Flow
Nifty 50 Index Performance over the last 1 month and FII Flow

Conclusion:

The continuous outflow of Foreign Portfolio Investors (FPI) /Foreign Institutional Investors might create downward pressure on the market. Hence from the perspective of health as well as the market, the Vaccination drive needs to be accelerated.





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