Samvat 2076 ended on Friday on a good note. Diwali marks the commencement of a new market year in India, also known as the Samvat.
While the market will enter Samvat 2077 with euphoria from the Mahurat trading and the vaccine news, investors will have to play the waiting game as many questions remain unanswered, especially on the economic front. With COVID-19 threat still looming, here are some factors that investors need to keep an eye on.
1. COVID-19 cases
The United States and countries in Europe have reported a record surge in daily cases this week as the outbreak continued to intensify with colder months approaching. Countries like Italy have also imposed lockdowns in certain regions, which means that these advanced economies that are generally looked at for stable growth, are yet to get back to normalcy.
It appears that people are growing tired of public health measures, which means that the spread in infection could only intensify in the holiday season.
Overall, this diminishes hopes of a V-shaped recovery as more damage to the global economy is expected in the coming weeks. A dull economic outlook in the western markets is often reflected in Indian stocks.
2. US elections and stimulus
President Trump still refuses to concede the election race which he has falsely claimed to have won, even as experts say he has little, if any, hope left of invalidating enough Biden votes, to surpass the Democrat in the Electoral College tally.
Further, the US economy has been crippled by high unemployment claims, creating an urgent need for additional stimulus even as the Fed Reserve is taking measures to support growth.
Federal Reserve Chairman Jerome Powell said last week that the US' economic outlook remained uncertain. "With the virus spreading, the next few months could be challenging," he said.
Gold prices have remained high as investors await clarity on stimulus measures to support the world's largest economy.
Lack of additional immediate aid for COVID-19 endangers the American economy's recovery, and could also cripple the nation's health care system. A divided Congress, (a Democratic president and House, and a Republican Senate) has lowered expectations for a massive US fiscal stimulus package anytime soon.
Being forward-looking as always, benchmark indices of the Indian markets and even the US hit record highs after the vaccine news, as investors managed to look past the rising coronavirus numbers.
"It's obviously good news," Alexandra Dimitrijevic, S&P's Global Head of Research, said of this week's vaccine breakthrough by Pfizer and German partner BioNTech, when taking about upgrading ratings.
"We think this probably increases the upside that there might be broad availability of a vaccine earlier," Dimitrijevic added. "But we still think there are a lot of uncertainties and challenges."
"If we were all vaccinated by spring it would be certainly good for growth and for companies, but there are still many challenges to get there." Dimitrijevic said. "The sooner (the vaccine is widely available), the better".
While initial trial results for Pfizer Inc and BioNTech's vaccine for COVID-19 have far outpaced scientists' expectations for protection against a completely new disease, many questions remain unanswered.
Experts said that questions remain unanswered on whether the vaccine can prevent severities or complications, how long it will protect against infection and how well it will work in the elderly.
Another important factor is the logistical challenges of distributing the Pfizer vaccine in hundreds of millions of doses once it becomes available.
The vaccine shots are required to be thawed at -70 degrees celsius and injected within five days to prevent them from going bad. Making its distribution an expensive affair.
4. High liquidity
A delay in announcing US stimulus and low-interest rates have caused a surge in foreign capital inflow into India.
With Federal Reserve indicating that its policy rates will remain low for three years, and expectations around the US stimulus, the excess liquidity among foreign investors is moving to markets that are more likely to recover faster than the US.
India has a stronghold on IT and pharma exports: sectors that have benefitted from the coronavirus pandemic and consequentially work-from-home culture. Companies in this sector are expected to have good business order book based on this factor.
In comparison, other commodity-oriented emerging economies, like Brazil or Russia, are looking less likely to make a V-shaped recovery; making India more attractive to foreign institutional investors.
5. Macro data
Data on factory output recovery and consumer spending has been encouraging but not good enough to create confidence of a fast-paced recovery of small and mid-cap companies.
Moreover, inflation data has been concerning. It was 7.6 percent in October, which is higher than RBI's tolerance level of 6 percent, causing the double whammy of high inflation and low growth.
If demand does not recover at a faster pace and if these small & medium businesses are not able to manage their debt levels, their existence could be threatened. Additional government stimulus to support smaller companies may have been of some help.
Ultimately, the MSME (Micro Small and Medium Enterprises) sector is the backbone of the Indian economy. For India to get back on track to growth, their recovery is important.