FPI | Lockdown: The lockdown extension can cause more FII money to be flown from stocks BUSINNESS

Mumbai: The expansion of the corona virus lockout could lead to a further flight of foreign capital from the Indian stock market as overseas portfolio managers are concerned about the effects of the ongoing closure on businesses and the economy.

Prime Minister Narendra Modi extended Tuesday’s nationwide ban until May 3, earlier than April 14, as the endemic coronavirus continued to spread rapidly in many parts of the country.

However, Modi said that certain relaxations can be given in areas that were promising in the fight against the disease. Within the next week, an assessment will be made for all cities, counties, and states to account for such easing, he said.

“This is negative news for the Indian economy and stock market,” said Hertta Alava, senior strategist at Nordea in Helsinki, Finland.

She was concerned that the country’s GDP growth is likely to collapse by almost 0 percent this year and India simply cannot afford the kind of incentives seen in western countries.

“The informal economy is large and many poor people simply cannot survive this long ban. Hunger is a real risk and the social costs will be enormous,” she stressed.

“Of course, Covid-19 can be a serious disease for high-risk groups, but considering that 80% of patients have mild symptoms and India has a young population, the blocking may be too expensive,” she said.

In the emerging markets, Alava is underweight India in the short term as visibility is poor with regard to the overall impact on business and the economy.

She is overweight in China, where economic activity has resumed, and also in Taiwan and Korea, where restrictions on economic activity have been much lower.

Market veteran Chris Wood pointed out the FII sell-off risk before the block was announced. “Ideally, India has reached the end of a three-week lock-up period. If there is another three-week lockout, the market will be sold out. There is a trade-off between healthcare and business, ”Wood, Global Head of Equity Strategy at Jefferies, said on April 12.

Foreign institutional investors (FIIs) have so far withdrawn $ 6.6 billion net from Indian stocks this year. In March, they sold $ 8.4 billion in Indian stocks.

The Sensex and Nifty stock benchmarks have lost more than 24 percent so far this year, and market prospects are bleak given the coronavirus pandemic and the deeper effects of the ban.

“The expansion of the restrictions is no surprise. However, there will be effects. Supply and demand will shrink significantly, ”said Maarten Jan Bakkum, Senior Strategist Emerging Markets at NNIP Investment Partners.

In an email response from The Hague, The Netherlands, Bakkum said the high level of informality in the economy and the limited scope for fiscal incentives are worrying and will cause more demand destruction than in most other countries.

“The Indian equity market has corrected but may continue to decline to better reflect the sharp economic slowdown,” he warned.

“Another concern is the state of the Indian financial system, which makes aggressive and effective monetary policy difficult. All in all, India is unlikely to be the defensive choice that it normally makes in times of global crisis, ”he said.

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