‘Restricting the Kerala Covid spike, 3rd wave key to keeping India premium’

Mumbai: Restricting the recent spike in Covid-19 cases in Kerala and avoiding a major national third wave will be key for the Indian market to maintain its record valuation premium to Asian and emerging market peers, said Hong Kong-based CLSA. The brokerage said it is positive on growth sectors such as banks and commodities on potential strong demand during the upcoming festival season and a positive global set-up.

Indian benchmarks ended 0.3-0.4% lower on Wednesday after their recent record-breaking run that saw the Nifty surpassing 17,000 and Sensex rising past the 57,000 milestone for the first time ever on Tuesday .

Bloomberg data show MSCI India is trading at an 80% premium to the MSCI EM index. This valuation premium compared with other emerging market counterparts has risen to a decade high.


The record pace of vaccinations should give governments confidence to further ease restrictions which will help boosting sentiment and demand during the festival season, said CLSA.

CLSA said India’s active Covid-19 cases are now down by 90% from the early May peak of the second wave, with some states showing a 99-100% fall.

Some commentators have blamed the recent festivals for the spike in cases in Kerala and a similar national spike or a third wave of Covid-19 could be a possible worry for the markets.

An ET Poll published Wednesday also highlighted that 23% of the fund managers polled believe that a third wave of Covid-19 is one of the biggest risks to the markets besides a quicker-than-expected tapering and inflation.