IMPACT OF CORONAVIRUS PANDEMIC ON INDIAN EQUITY MARKETS - OVERVIEW OF KEY SECTORS

Abstract

Economies in the past at the firm, as well as at an individual level, have witnessed a succession of crises like the 1997 Asian Economic Crisis, the 2000-2002 Dot com bubble, post 9/11 downturn, the 2007-09 financial crisis (Wenzel et al.,2020). Although these crises had different origins and scales (Bansal et al.,2018), their commonality was the cataclysmic impact on the world, leading to widespread disruption of industries, massive job cuts, income insecurity, and damages (Hällgren et al., 2018).

A pandemic is defined as “an epidemic occurring worldwide, or over a wide area, crossing international boundaries and usually affecting a large number of people” (WHO,1998).An analysis of the impacts of such epidemic diseases is vital as severe epidemic diseases are a recurrent phenomenon with grave consequences for human life and the real economy (Qualls et al.,2017). Seeing the severity of such a crisis, the World Health Organization on 11^th March 2020 assessed that coronavirus be characterized as a pandemic (WHO,2020). With the continuing spread of coronavirus, governments have had to put in place robust measures to lessen deaths, including the prohibition of events, lockdowns, and even shutdowns for months together. Based on current and historical data, we can see that the spread of coronavirus is much faster than prior epidemics viz. S.A.R.S, M.E.R.S, and Ebola. It is the first instance in peacetime, where there is a simultaneous disruption in the supply chain and the demand chain (Siegel,2020).

An increase in the number of confirmed cases and deaths due to coronavirus is responsible for a significant rise in market illiquidity and volatility (Baig et al.,2020). The successive implementations of restrictions and lockdowns worldwide further contribute to the deterioration of the liquidity and stability of markets (Baig et al., 2020).Hence in such a scenario, understanding of the intermarket volatility has become paramount for the pricing of securities within and across the markets for trading and for developing hedging strategies for an emerging market like India that is rapidly getting integrated into the global economy (Mishra et al.,2007).

Hence our study is aimed at adding to the existing literature on market response to pandemics in emerging economies like India on two fronts; volatility and returns. Further, we set out to examine whether the impact of coronavirus is homogenous across key sectors. We also seek to empirically examine how the returns of the different sectors are related to the volatility measures. This has implications for retail as well as institutional investors among other market participants.