Even before the Covid-19 epidemic took its pandemic form, the Indian equity markets suffered many blows arising from developments related to the virus. The S&P BSE Sensex, for example, saw some major swings in the last five months, since January 2020.

While the Sensex swung to its new life-high of 42,273.87 on January 20, it took 46 trading days for the benchmark index to correct 16,634.97 points, or 39.35%, to touch 25,638.90 on March 24 – the day before the nation-wide lockdown began.

On May 29 – the last trading day of the month – the Sensex closed at 32,424.10 – recovering 6,785.20 points, or 26.46% from the March 24 low. However, 88 days since the touching the life-high of 42,273.87, the Sensex was lower by 9.849.77 points, or 23.30%, on May 29.

Overall, in the 101 trading days of the first five months of 2020, as compared to 41.306.02 at the close of January 1, the Sensex had lost 8,881.92 points, or 21.50%, at 32,424.10 on May 29.

In the same period, foreign portfolio investors (FPIs) recorded their worst net investment flows in five years since 2016. Overall, the first five months of 2020 saw net FPI outflows totaling ₹130,491 crore – the worse in the last five years and more than four-fold compared to the outflow of ₹32,077 crore in the first five months of 2018.

In terms of equity, January-May 2020 witnessed the largest net outflow of the period over five years at ₹40,345 crore – over 25 times more than the net outflow of ₹1,600 crore seen in the five month period of 2018. In the five months of 2020, the maximum outflow of ₹61,973 crore was recorded in March, while the net inflows of ₹14,569 crore in May 2020 helped improve the scoreboard.

When it comes to debt, the January-May period was three instances of outflows: 2016: ₹5,349 crore, 2018: ₹30.465 crore, and 2020: ₹105,414 crore. During 2020, like equity, debt too recorded its highest outflows worth ₹60,376 crore in March. During 2020, there have been four months out of five when debt saw net outflows, wherein the last three months, including March, have seen consecutive outflows: April: ₹12,552 crore, and May: ₹22,935 crore.

The only difference seen in the first five months of 2020 is the existence of debt inflows worth ₹12,364 crore invested by FPIs through the voluntary retention route (VRR), which came into effect since May 24 last year. As per the RBI, the investment under VRR route is in addition to the general investment limit for FPIs, and capped at ₹150,000 crore, and the minimum retention of investments is three years.

Debt-VRR apart, effecting November 2017, FPIs have been permitted to invest in hybrid investments – like real estate investment trust (REITs) and infrastructure investment trusts (InvITs). From a net inflow of ₹13 crore during January–May 2018, net inflows in hybrids grew to ₹6,545 crore in the five months of 2019, before recording net inflow of ₹2,906 crore in the same period of 2020.

While the Covid-19 pandemic has impacted the markets, the fast–paced decline in the indices followed by fast-paced recovery has perplexed equity investors. On the other hand, the fiscal stimulus from the government coupled with measures from the central bank – Reserve Bank of India (RBI) has put debt investors in a fix, given the sharp stretch in the fiscal deficit and declining interest rates, while the already moderating economic growth is seen to be taking a beating owing to the stringent lockdown measures pursued in order to keep a tab on the Covid-19 pandemic.

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