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Global investors are betting that the worst of India’s catastrophic wave of coronaviruses has gone through, which has helped push the country’s stock to record highs.
The Nifty 50 index, which tracks India’s 50 largest companies, peaked this week and rose 9% from its low in late April, when Covid-19 infections they were increasing.
Enthusiasm has spread to other assets in India, with the rupee rising 4% against the dollar over the same period.
India’s stock demand highlights investor relief from devastating second wave of infections it seems to have reached its peak. But it also highlights how traders see little to upset the profits of India’s largest companies, even though the country still reports more than 100,000 Covid-19 cases a day.
“To value India from the perspective of equity investment, investors will look beyond the current human catastrophe,” said Brijesh Ved, equity portfolio manager at BNP Paribas Asset Management India.
Ved added that the country would probably emerge from the pandemic as fastest growing economy to the world and that “long-term key investors like us continue to view India as a growing market.”
Some Indian companies have thrived during the pandemic, in part due to reduced costs, including layoffs. According to Edelweiss Financial Services, a brokerage, profit margins at the end of 2020 were maximums of eight years.
“The pie may have shrunk, but the distribution of profitability has shifted very sharply towards … high-end companies, which is what is reflected in market indices,” said Aditya Narain, head of Edelweiss research.
From India second wave it overflowed health systems and caused an acute shortage of oxygen and drugs and affected the economy. But now infections are falling in much of the country, including the capital of New Delhi and the financial center of Bombay.
Authorities reported 133,000 new infections and 3,200 deaths the previous day on Wednesday, below the May daily highs of more than 400,000 and 4,500, respectively. Official figures are believed to be a large number of infrastructures.
Vikash Kumar Jain, investment analyst at CLSA brokerage, said foreign inflows began to rise in the last few days after major April and May outings.
He added that investors could rush to increase their exposure to India’s economy, which may have recovered from the second wave at the end of the year.
First-quarter earnings of Indian companies did not reflect the worst of the last wave, which recovered in April. However, investors suspect that the results obtained will be brief.
“You have the feeling that it will have an impact of one or two months and there will be normalcy, then profit growth will recover very abruptly,” said Hemang Jani, equity strategist at Motilal Oswal Financial Services Brokerage.
Still, Narain warned that the second wave could have a more lasting impact than the first, especially in areas such as consumer demand.
“There could be a little reality check for the markets,” he said, adding that “there is no family that has been impacted.”
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