The associated risks can come from (i) rising Oil prices, (ii) rising interest rates due to fiscal deficit, and (iii) synchronous global market correction as US multi-year economic expansion is behind India.

Bond Interest Rate and the Stock Market

In the month of February, the bond investors were revolting against the bond market interest rate. As a result of which reflation (stimulating the economic output by means of fiscal stimulus or reduction in taxes)- the guiding light of treasuries betting on rebounding growth is proving to be resilient. Long-term Treasury yields touched the highest in almost a year, the market stumbled on the expectations of inflation that accelerated to the fastest pace since 2014 and the yield curve reached the steepest levels in more than 5 years (Bloomberg, 2021). 

The reflation trade paused for a while after the government press release on 10 February showed the consumer-price inflation to be revolving around 1.4% annually, which was lower than expected. According to Michael Pond, global head of inflation strategy at Barclays, the CPI report was a disappointment as it doesn’t change the outlook of investors and there is no expectation that it will change investors’ views about expected inflation (Bloomberg, 2021).

Hence the theme of reflation is based on a story about where inflation will move once the majority of the citizens are vaccinated and demand normalisation. 

Does a Change in the Federal Reserve Interest Rate on New Bonds Stimulate the Indian Market?

After Joe Biden swearing as the 46th US President and taking over his role in the White House, the Fed, the central bank of the US has been closely involved in changing the interest rates on new bonds in the month of February. For an emerging economy like India, these changes have a significant effect. The India investors whose speculations are based on the daily movements in the world stock markets are of the view that the decision of the Fed to decrease the interstate rate on bonds will be welcomed by the citizens as the economy struggles to revive from the COVID-19 pandemic. The ultimate goal is to infuse liquidity in the market so that citizens have cash in their hands which will help to pull up the demand in India. 

The Fed expected its interest rate to be close to zero and signalled that it will remain close to zero in many years to come. This is a part of a long-term strategy that the Fed adopted in the year 2020 that proved to be helpful while navigating a world of persistently low-interest rates that makes it difficult to hit its 2 percent inflation goal (Reuters, 2020). 

A sharp increase in demand as Covid-19 inoculations allow more of the economy to reopen could push inflation above the Fed’s 2 per cent target. If markets push up long-run interest rates a bit to reflect expectations for future faster growth, the Fed likely wouldn’t change course. That’s consistent with the new framework if the economy hasn’t achieved sustained 2 percent inflation by then (Reuters, 2020).

RBI Having a Tough Time in Keeping a Check on Bond Yields

After the release of Union Budget 2021, RBI is under constant pressure to keep the traders of bond calm. Although a higher fiscal deficit was expected, it rose to 9.5% as a percentage of India’s GDP for FY21 and is forecasted to touch 6.8% in FY22. A higher fiscal deficit came as a daunting news for the bond market which led to a surge in bond yields. 

There is an estimate made that the market borrowing of the central government will be at Rs 12 lakh crore in FY22. There is an increased supply of government bonds in the market that could lead to a demand-supply gap, thus putting pressure on yields. The investors in the government bonds are receiving higher yields thereby causing a similar demand on corporate bonds (ET Contributors, 2021). This leads to a rise in borrowing cost for corporates, thereby negatively impacting private investments in the country. In addition, higher bond yields further complicate the transmission process of the rate cut by the central bank (ET Contributors, 2021).

The responsibility now falls on the shoulders of RBI to keep a check on bond yields. In the last bi-monthly Monetary Policy meeting (MPC), there were no announcements made in this regard. As the economy is currently recovering from a recessionary phase, the phase of increase in inflation is getting stronger (ET Contributors, 2021). 

Thus given the current circumstances, RBI would be having a tough time in keeping the check on yields. The central bank has to deal with two-fold problems: on one hand to check the inflation while on the other hand has to handle the market borrowings from both the central and state governments. RBI needs to actively participate in the bond market and communicate well with the market participants in order to ensure that the bond yields are in check. 

Pandemic Fatigue Leading to a Fear of Lockdown

As news around the second wave, COVID-19 pandemic in foreign countries like UK, US, Australia are reaching the Indian households, residents are in a fist that there might be phased lockdown across the states in India. Several states like Maharashtra, Uttar Pradesh, Gujarat and Kerala are recording a spike in COVID-19 cases again which is directing the state and central government to impose night curfews in these states. Cities like Mumbai, Pune, Amravati, Aurangabad, Ahmedabad are already observing night curfews due to a rapid hike in COVID-19 cases. 

In a recent report released by Union Health Ministry, the primary reasons for the growing number of cases in few states were reported as – COVID inappropriate behaviour due to “lack of fear of disease”, pandemic fatigue, missed cases, super spreading events and crowds due to recent gram panchayat elections, marriages, reopening of schools, and crowded public transport.

The Recent INR-USD Change

The US Dollar to Indian Rupee Exchange Rate measures the ratio between the US Dollar and the Indian Rupee. Exchange Rates can be used to measure the relative health of an economy versus another. Exchange rates are also important in corporations that operate worldwide because they will directly impact their financials (YC, 2021).

US Dollar to Indian Rupee Exchange Rate is at a current level of 73.92, up from 72.74 the previous market day (February 25, 2021)  and up from 71.65 one year ago. This is a change of 1.62% from the previous market day and 3.17% from one year ago (YC, 2021). 

F&O Cues

F&O stands for Future and Options. These are the major types of stock derivatives traded in a share market. These Derivatives are the financial instruments deriving their values from an underlying such as currency, gold, or the stocks of a company.

Such contracts try to hedge market risks involved in stock market trading by locking in the price beforehand.

• Nifty February futures ended at 15,195; premium of 22 points 
• Nifty February futures add 1.2% and 1,745 shares in Open Interest
• Nifty Bank February futures ended at 35,854; premium of 102 points
• Nifty Bank February futures add 4.3% and 2,621 shares in Open Interest 
• Nifty Put-Call Ratio at 1.48 Out of F&O Ban: Sun TV Stocks In F&O Ban: BHEL, SAIL 

Brief on FII and DII Trading Activities during February 2021

Foreign Institutional Investors (FII) is the term used for investors who belong to foreign lands and are interested in putting their money in the Indian stock market. These are available in various forms such as mutual funds, investment trusts and pension funds. Domestic Institutional Investors (DII), on the other hand, refer to the investors belonging to India who invest their money in the Indian stock market. This comprises domestic mutual funds, banking and financial institutions, insurance companies and domestic pension funds (Dhanorker, 2020).

Indian stock market attracts millions of investors annually. These investors are primarily driven by institutional money. Both FIIs as well as DIIs constitute the major part of liquidity in the stock market. Therefore the effective tracking of their inflows and outflows are helpful in forecasting the broader trends in the markets. FIIs are believed to have a greater influence on the domestic markets along with the sustained flows from DIIs (Dhanorker, 2020). The countries which constitute a major portion of FII inflows into India are listed below. 

The performance of FIIs and DIIs have been carefully traced to meet the expectations of the investors during the month of February 2021. One of the primary reasons behind this is that the year 2021 will mark the arrival of the COVID-19 vaccine followed by the economic recovery that will see the Indian government taking stimulus measures to cope with the weak performance of the Indian economy during the COVID-19 pandemic. So it becomes of utmost importance to keep a track of previous FII and DII trading activities. 

The above table shows the trading activities of FIIs and DIIs from December 2020 to February 2021. There has been a continuous increase in the gross purchase of FII from Rs. 182 crores (approximately) in December 2020 to Rs. 223 crores (approximately) in February 2021. The gross sales of FII also increased from Rs 134 crores (approximately) in December 2020  to Rs. 180 crores (approximately) in February 2021. This increase was sharp for the month of  January and February because of the speculations surrounding the foreign investors due to the successful release of the COVID-19 vaccine and vaccination of common citizens which ultimately registered a steep increase in the net purchase/sales for the FIIs. 

Similarly, DIIs showed an impressive improvement in their performance as their gross purchases increased threefold from Rs. 84 crores (approximately) in December 2020 to Rs. 104 crores (approximately) in February 2021. Due to the restrictions on the movement across the borders and closing of the economies worldwide, the domestic investors started putting their money in the Indian stock market as a result of which the gross purchase increased. However, the gross sales had reduced from December  2020 to January 2021 2020 but increased during February 2021. 

Conclusion

In my opinion, the COVID-19 pandemic in 2020 delivered some of the greatest shocks to the global economies since World War II. The entire economies have been locked down and people adjusted to the new ways of working, studying and socialising. There are millions of people who have lost their jobs and became unemployed as a result of which inequality and poverty soared. The globalised economies acting as lifelines to billions of people worldwide has suddenly become vulnerable, owing to the disruptions of the global supply chains and government strategies to protect domestic stock market. Given the persistence of COVID-19, the recovery in 2021 will largely depend on how effectively the vaccine is distributed and how the various industry stakeholders reacted to the Union Budget 2021-22. The multidisciplinary robust approach will be required to mitigate the ill-effects of the pandemic and to address longer-term challenges posed by climate change. For this current and former political leaders, scholars, academicians, senior policymakers should provide exclusive analyses of the tasks that lie ahead in order to ensure that we are ready to meet the forthcoming challenges. 

References

Bhise, R. (2021, February 11). February 2021 Stock Market Outlook. investment shastra. https://www.moneyworks4me.com/investmentshastra/february-2021-stock-market-outlook/

Bloomberg. (2021, February 14). Bond market reflation trade absorbs punch to extend 2021 advance. Economic Times. https://economictimes.indiatimes.com/markets/bonds/bond-market-reflation-trade-absorbs-punch-to-extend-2021-advance/articleshow/80906847.cms?from=mdr

Dhanorker, S. (2020, June 29). What stocks are FPIs, FIIs and DIIs buying and selling? Economic Times. https://economictimes.indiatimes.com/wealth/invest/retail-investors-urged-to-stay-away-from-gamestop-inspired-communities/articleshow/80663373.cms

ET Contributors. (2021, February 18). Why is RBI having a tough ride in keeping bond yields in check. Economic Times. https://economictimes.indiatimes.com/markets/bonds/why-is-rbi-having-a-tough-ride-in-keeping-bond-yields-in-check/articleshow/81088372.cms?from=mdr

Reuters. (2020, December 16). Fed will be tested in 2021 as vaccines boost US economic outlook. Economic Times. https://economictimes.indiatimes.com/markets/stocks/news/fed-will-be-tested-in-2021-as-vaccines-boost-us-economic-outlook/articleshow/79751536.cms?from=md

YC. (2021, March 7). US Dollar to Indian Rupee Exchange Rate 73.92 INR/1 USD for Feb 26 2021. Charts. https://ycharts.com/indicators/us_dollar_to_indian_rupee_exchange_rate_h10

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There are several reasons why vaccines are not trusted, including religious and political reasons. This is exasperated by the misinformation that is spread wildly about the science behind vaccines, and the validity of such claims. Ultimately, it all boils down to how much government entities and other community leaders can propel misinformation about vaccines, and the fact that decisions about vaccines might affect the community at large.

Medical Objections Against Vaccinations

A study conducted by Andrew Wakefield in 1998 linked autism to the measles, mumps, and rubella (MMR) vaccine. It was later discredited and retracted, however, this study is still referenced as a reason to not vaccinate children, or has at least kept the idea prevalent. People often believe that vaccines are more harmful than the diseases they might prevent because of their side effects. The same sentiment is being referenced to in recent objections about a coronavirus vaccine. Pharmaceutical companies and governments are moving at record speeds to come up with a vaccine for the coronavirus. However, this is also fuelling uncertainty and hesitancy about vaccines.

The common folk is worried about compromising quality in the race for a vaccine, and some experts agree: Oksana Pyzik, who is a senior teaching fellow at the University College London School of Pharmacy says, “The fact that it’s being crunched into such a short period has been a cause for concern”. There is also a large mistrust of big pharmacy companies at play here along with a general mistrust against science and experts. People believe that the science that is provided in support of vaccines is either falsified for profit or can be proven incorrect in the future. In the case of the coronavirus vaccine, trials are being conducted one after the other without time to properly gauge the implications of the previous trial. Vaccine development can take decades; hence it is only natural that there are doubts about the safety of a coronavirus vaccine developed in less than a year.

Religious and Political Objections

Vaccines can also bring religious objections – the MMR vaccine and the rubella vaccine had been previously derived from fetal tissue. Opposition to abortion present in religions such as Hinduism, Islamism and Jewism can translate into opposition to vaccines. Religious reasons such as these are brought into play when we consider the fact that schools grant exemptions to children based on religious grounds. Schools might continue to do so even when a coronavirus vaccine comes into being, which can be a concern for overall public safety if parents want to send unvaccinated children to school citing religious objections.

Objections to a vaccine are often part of a bigger picture which includes discourse on government intervention. Opinions on a vaccine can vary along party lines, with 81% of Democrats and only 51% of Republicans keen to get vaccinated in the United States. Certain people can value individual liberty and not want the government to intervene in vaccination-related decisions, which is why Dr. Anthony Fauci, the director of the National Institute of Allergy and Infectious Diseases since 1984 said that the United States will not make a coronavirus vaccine mandatory. The idea that vaccination is increasingly becoming compulsory in order to attend school is, in turn, fuelling the anti-vaccination sentiments. People valuing freedom are interpreting this as an infringement of their rights. A study titled “The psychological roots of anti-vaccination attitudes: A 24-nation investigation” found that there is a correlation between anti-vaccination sentiments and “reactance” which is described as “the tendency for people to have a low tolerance for impingements on their freedoms”. 

Coronavirus Vaccines and Future Steps

Dr Anthony Fauci has also said that a vaccine taken by only two-thirds of the public would not create the herd immunity we want – in order for economies to get back up and running. In uncertain times such as these, one of the ways to vaccinate people is to either have governments make vaccinations mandatory. Dr Fauci’s previous comment about mandatory vaccination being unlikely in the United States could be indicative of an approach many countries could take. In such a scenario, it is important that there are discussions and discourse regarding vaccine safety. 

People often do not rely solely on doctors for medical advice, or at least have different sources than can influence their medical decisions. There needs to be a coming together of leaders in the community – religious leaders, celebrities and politicians – in order to combat misinformation and to encourage people to get vaccinated. Secondly, it is important to address religious concerns. Though most religious organizations do not actively oppose vaccination, there is sometimes opposition to vaccination in certain religions. Religious leaders could be instrumental in combating vaccine hesitancy – against coronavirus and other preventable diseases. 

Such a sentiment on discourse about vaccines is best represented by Dr Mike Ryan’s quote. Dr Ryan, who is executive director of World Health Organisation’s health emergencies programme, said that people need to be allowed to have conversations about vaccines – “It’s not a one-way street. It’s not about shoving things down people’s throats. It’s about having a proper discussion, good information, good discussion on this and people will make up their own minds,” he was quoted saying.

Properly publishing information on how vaccines are developed and how safe they are can quell medical objections to vaccines. Propelling rumours and misinformation is important – despite the sped-up process, vaccines are still going through required checks and tests before being made available to the public. Moreover, data from trials is being verified from other sources too. People often have worries about the authenticity of medical equipment. For example, the WHO says that 1 in 10 medical products are either fake or below a certain standard. This is all a part of the mistrust people have of “big pharma”, and even the government. Conspiracy theories have cropped up saying the government might inject microchips in the vaccines. Such rumours increase vaccine hesitancy and need to be combated by emphasising the importance of vaccines in public safety.

Conclusion

All efforts and resources including medical personnel, money and infrastructure that is being put into the development of a coronavirus vaccine will be in vain if people refuse to get vaccinated if and when a vaccine becomes available. Making the vaccine mandatory is something a lot of countries might be unable to do. In this situation debunking conspiracy theories and having trust in public safety experts and doctors is crucial. In fact, it is important to trust medical experts in all matters related to vaccines. Even the WHO has included vaccine hesitancy in its list of top 10 global health threats and that goes on to show how important it is for discourse to happen on the importance and safety of vaccines. 

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Challenging Factors

While the sector continues to grow, there are some factors that may challenge its growth in the near future. Lack of stable pricing, drugs in India is not affordable for some people. 60% of the population in India does not have regular access to essential medicines just because they are pricey. Drugs Price Control Order (DPCO) and National Pharmaceutical Pricing Authority (NPPA) work hand in hand to review the prices that are carried out on such products. Currently, the DPCO regulates 74 bulk medications. The second factor is the lack of technological capabilities. So maybe improving the innovation space would help with pharmaceutical growth.

Jan Aushadhi

The Indian Government’s Department of Pharmaceuticals has also initiated operations for a people’s medicines shop, called ‘Jan Aushadhi’, in various locations. These shops sell generic medicines at much cheaper rates than the price of corresponding branded medicines.

Vaccines

Vaccines are another prominent area of growth. India is one of the largest vaccine producers in the world, with many new vaccines set to be launched in the next 5 years. India currently exports vaccines to about 150 countries. PWC says that it meets around 40-70% of the World Health Organization’s demand for the DPT (diphtheria, pertussis or whooping cough, and tetanus).

OTC and Ayurvedic Medicines

Indian consumers also put greater focus on prevention and well-being, which should lead to continued growth in the sales of OTC vitamins and mineral products. The demand is already starkly rising. Artificial sweeteners, emergency contraceptive pills and nutritional supplements are some profitable OTC drugs.  Some of the leading OTC brands in India are registered as ‘Ayurvedic Medicines’ because of their plant-based natural active ingredients. There are no price controls on ‘Ayurvedic Medicines’.

Joint Clinic Trials for Ayurveda

India and the US intend to launch joint clinical trials against the novel coronavirus for formulations of Ayurveda. The two countries partnered to support Ayurveda through a joint program of research, teaching and training. Via collaborative activities the Indo-US Science Development Forum has also been instrumental in fostering excellence in science, technology and innovation. 

Ministry of AYUSH

AYUSH stands for Ayurveda, Yoga and Naturopathy, Unani, Siddha, and Homoeopathy. The Ministry of Ayush focuses on developing education, research, and propagation of alternative indigenous medicine systems in India. It has faced strong criticism of funding schemes. Clinical quality was poor, and medicines were implemented without any clinical trials and studies. Concerns have been raised about AYUSH based healthcare.

Future Prospects

The future of the pharmaceutical sector in India would be good because-increase in the burden of diseases, rising income of individuals, improvement in healthcare infrastructure and many more things. The sector is already growing so much because of the leading coronavirus pandemic.

Pharma and Coronavirus

The impact of the pandemic and the lockdown triggered a visible effect in financial markets. Drugs that are Made in India are supplied to developed countries such as the US, EU and Japan. These drugs are known for their well-being and standards. People are going crazy over a bottle of Sanitizer. Hospitals are full. Pharmacies are always crowded. If we talk about the future, we don’t know what is ahead of us. Corona is probably here for a long time. We can’t say that no other disease will hit India in the future, so, pharmaceutical sector is expected to grow multifold and continue to be an attractive investment destination.

Economic Boost

India’s population is increasing day by day, as its economy, so demand is likely to increase for the drugs. Income levels of households will rise very steadily. Government coming with ‘Below Poverty Line’ (BPL) segment will also be profitable for the pharma sector. Also, the acceptability of modern medicine and newer therapies will increase due to aggressive market creation by players.

Conclusion

India’s pharmaceuticals industry has risen in faith and firmly moved onto an accelerated growth course. The main issue now lies around the real culture and the full scope of this market ‘s ability. Backed by strong fundamentals, the market is giving rise to a range of business opportunities.

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