COVID-19 second wave: Lockdowns make a comeback; is it Deja Vu for markets, economy?

A year after the world’s harshest lockdown, India seems to be back to square one with intermittent lockdowns being announced again as authorities grapple with the severe second wave of Covid-19.

India was put under one of the most stringent lockdowns in March 24 last year. All establishments, including private, commercial, educational and government, were asked to remain shut.

The stock markets, sensing the upcoming lockdown, crashed, with the BSE Sensex witnessing its biggest-ever plunge of 4,000 points in a single day, and closed at 25,981.

The first impact of the lockdown was witnessed through shocking images of migrant workers walking for miles to reach hometowns in the absence of work, place to live or food to eat.

On March 26, the government announced the doubling of food rations for Indians enrolled in the public distribution system. This was followed up over the course of time with the announcement of special Shramik trains for such stranded workers to be able to reach homes.

RBI action

The RBI also sprung into action to provide relief to loan borrowers at a time when businesses were shut by announcing on March 27, 2020 a moratorium of three months on payment of instalments. This was applicable on loan repayments like auto, home, personal EMIs, etc.

On the industrial side, the impact  was seen on the monthly auto sales numbers of April 2020, when all together car makers, two wheelers and three-wheelers reported zero sales for the first time ever. No vehicle was produced or sold in April.

Oil demand

On the other side, the global shutdown of borders to prevent influx of people carrying the disease, dealt a huge blow to the crude oil demand. Crude oil prices were trading at around $29 per barrel in March 2020 before the lockdown. However, on April 20, 2020, Crude oil prices fell below zero  to -$37.6 a barrel for the first time in history. A negative price suggested that sellers were ready to pay buyers to take deliveries in a bid to avoid incurring storage costs. The ramifications for the oil market were huge, as more than two-thirds of the world’s population were in lockdown, meaning no one was driving, flying or doing much that would require the use of crude or its derivatives. Refiners, producers and even petrostates were all facing uncertain futures.

The month of May saw the government ushering in economic stimulus packages to combat Covid as part of the Aatmanirbhar Bharat Packages. The Finance Minister announced Rs 3 lakh-crore collateral free loan scheme, measures for MSMEs and the deadline for income tax filing for FY 2019-20 was pushed to November 30, 2020 and many such measures were announced to help various sectors of the economy. 

Timeline

June began with the government unlocking some parts of the economy on June at under Unlock 1.0 to help them revive gradually. The new cases as on this date had risen to 8,442.

July ushered in a ray of hope with Phase-1 clinical trials of India’s indigenous vaccine by Bharat Biotech -Covaxin- beginning on July 15.

After three months of largely grounded operations, international commercial operations resumed with air bubble pacts with a  few countries.

The uncertainty around the ballooning numbers of Covid-19 pushed the demand for gold as a safe haven asset. Also, escalating tensions between the US and China, expectations of more stimulus measures on hold, a weak US dollar  kept demand for gold high. Gold prices, which were trading under Rs 41,000 per 10 gram in March 2020, rose sharply and hit a record high level of near Rs 56,200 on August 7, 2020.

August also brought forward the stark reality of the impact of the rising Covid-19 cases on the Indian economy as the  GDP growth contracted 23.9% in the April-June quarter. This was caused by stringent nationwide lockdowns during April and May which stalled economic activity, shut out consumption, investment and led to loss of jobs for many.

September saw new Covid cases peak at 97,894 on a single day, in the first wave. India recorded over 1000 deaths for the first time due to the raging pandemic.

The pain for the Indian economy was not over yet, as it witnessed the first ever technical recession in the year 2020, with gross domestic product (GDP) growth remaining in the negative territory for two consecutive quarters. In the second quarter again, the GDP contracted by 7.3% but the pace decline narrowed sharply. However, crucial services segments still remained in the negative zone.

By the year end, with easing of Covid restrictions and resumption of business activities, India exited the technical recession phase in October-December quarter with a growth of 0.4%.

The new year began with new hopes of finally having a vaccine to protect our huge population against the deadly virus. India began vaccinating the healthcare workers on January 16. This helped the stock markets rally. Sensex created history by breaching the 50,000 mark on January 21, by this time it had rallied over 25,500 points or 98% from the March 2020 lows.

Fresh Covid cases also dropped to near 9,100 on February 8, as Indians began to hope for a Covid-free nation soon.

The happiness was perhaps shortlived. India soon began to come under the grip of a much severe second wave.

UK Covid variant

The new variants from UK, Brazil and South Africa began spreading much faster and the double mutant variant led to an unimaginable rise. The daily tally rose from about 10,000 in February 2021 to log over 1 lakh cases on April 4, 2021, which was again a new fresh peak.

Over the next 10 days, India became the second nation to record over 2 lakh daily COVID-19 cases. The cases have been multiplying everyday since then  tracking a new high almost daily with a new record of 2.94 lakh cases recorded as on April 21, 2021.

The swelling numbers forced many states facing the maximum rise to start imposing restrictions and lockdowns again.

Maharashtra ordered new curbs to come into effect with the state’s caseload rising to 6 lakh. Section 144 has been imposed across the state until May, with restricted public movement except for essential services. State Health Minister Rajesh Tope has also indicated that a request was submitted to Chief Minister Uddhav Thackeray, by all the ministers, to impose a total lockdown from 8 pm on April 21.

In the national capital too, a six-day lockdown is in force till the morning of April 26 citing a relentless surge in Covid-19 infections that has risen by close to 600% in the last two weeks and has now inundated hospitals and triggered a shortage in critical medical supplies.

Hospital beds, oxygen, ventilators, life-saving medicines and vaccines are in acute supply. Patients are dying without testing or treatment outside hospitals, in ambulances, on the staircases and on wheelchairs.

Prime Minister Modi however in his late night message on April 20, said that the countrymen will need to come together to work on micro containment zones and save the nation from another lockdown. He also has asked states to look at lockdowns as the last resort.

With the expansion of the vaccination drive from May 1 and hopes of more vaccines to enter the market, there is hope that the current rise in number of Covid-19 cases and the overwhelming healthcare systems may get some relief.