Fast-track Covid-19 vaccine approval gives indices a shot in the arm

Equity markets staged a strong comeback on Tuesday as the Centre’s decision to fast-track approvals of foreign-made Covid-19 vaccines boosted investor sentiment. The Sensex rose 660 points or 1.4 per cent to end at 48,544, while the Nifty50 index added 194 points, or 1.4 per cent, to finish at 14,505.

In the previous session, both the indices had crashed 3.5 per cent to close at their lowest level since January-end as an alarming rise in Covid-19 infections and fresh imposition of lockdowns cast doubts over expectations of economic revival. Experts said news of the Centre fast-tracking emergency use approval for foreign-made vaccines that have been granted similar clearance in other countries proved a shot in the arm for the markets.

“Sentiment was boosted by the news of fast-tracked emergency approvals for foreign-produced Covid-19 vaccines,” said Ajit Mishra, vice-president – research, Religare Broking.

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“We expect volatility to continue until there is clarity over the lockdown situation and availability of vaccines. The earnings season would further add to the choppiness ahead, so we suggest investors maintaining stock-specific trading approach,” he added.

Economy-facing stocks such as those in the financial, automobile, and metal sectors staged a solid comeback.

Mahindra & Mahindra rose 8 per cent, Bajaj Finserv rose 6.4 per cent, and Maruti Suzuki rallied nearly 5 per cent. IT and pharma stocks were among the major losers, with TCS dropping 4.2 per cent a day after it announced its March quarter results and Dr Reddy’s fell 4.2 per cent.

India has managed to vaccinate only a small portion of its total population and is facing a shortage of vaccines. Experts said the move to fast-track emergency approvals will increase the speed of vaccination and help control Covid’s spread.

Analysts believe the markets could undergo more pain in the short term, but are better poised from a medium-term perspective.

“We hope that the Indian market escapes with a ‘shallow’ correction as the market looks ahead at the post-pandemic recovery and reasonable medium-term prospects and bond yields remain supportive with moderate increase from current levels given the Reserve Bank of India’s (RBI’s) aggressive and explicit bond buyback programme,” said strategists at Kotak Institutional Equities.

The Sensex is currently down 7 per cent from its peak, reached in mid-February. The correction has brought valuations to a more reasonable level. However, analysts could downgrade FY22 earnings estimates in the wake of fresh lockdowns.