Volatility in Indian Stock Markets During COVID-19: An Analysis of Equity Investment Strategies

Introduction

COVID-19 has weakened the global economy and is considered to be a ‘Black Swan’ event for the world. Since the start of COVID-19 in late 2019, globally more than 88 million people have been affected by this virus and almost 2 million have succumbed to death. India is currently the 2^nd most affected country as per the number of cases (as on 25^th January 2021, as per WHO data available at: https://covid19.who.int/table). Naturally, the global economy took a serious hit and shrank by 4.3 percent in the last year. The world economy faced such a severe recession in 2020 that only the recessions caused by the two World Wars and the Great Depression could be termed as more serious than this one. Year 2020 can be termed as the 4^th largest recession in last 150 years. In year 2021, the recovery path is still very uncertain with resurgence of cases and difficulties in vaccine distribution (The World Bank, 2021). The economic impact is affecting every country, but it’s even graver for the developing economies. The pandemic has caused such widespread unemployment that millions of people have been tipped into poverty. Indian economy too has suffered extremely. India officially went into lockdown from 25^th March, 2020 which brought with it a lot of chaos for the world’s 2^nd most populous country. The widespread panic especially among the migrant workers was unparalleled. The expected national income and growth figures tumbled, along with the stock markets. The Indian economy fell by 9.6 percent in the last calendar year, due to the government as well as private containment efforts leading to a slump in domestic consumption (Business Standard, 2021). A quick view of the Indian stock market is presented in Figure 1, which shows most widely used index of the country i.e., Standard & Poor Bombay Stock Exchange (S&P BSE) Sensex. The stock index took a sharp fall in March 2020.

Figure 1.

S&P BSE sensex (Source: S&P BSE Sensex, available at: https://www.bseindia.com/sensex/code/16/)