Why isn't India's stock market falling more?

Why isn't India's stock market falling more? The question is a fair one, considering the risky asset class in a country struggling with its most horrific calamity since its violent partition and independence nearly 75 years ago. New daily Covid-19 infections have remained above 300,000 for two weeks now, the worst caseload the world has seen. The death rate is 3,700-plus probably much higher if you discount the under-reported official statistics.

Fear of the virus is pervasive. Even the rich and the powerful are finding it hard to arrange a hospital bed or track down an oxygen cylinder. But in all this, the benchmark Nifty 50 Index is down ever so slightly, clocking a less than five per cent decline since mid-February.

At 32 times earnings, almost double the valuations in China, the Indian market is super-expensive. The logic for those prices runs like this: Unlike last year, there's no national lockdown. And there may not be one if the peak of the surge is just a week or two away, as some epidemiological models indicate.

Besides, investors know from the first wave in 2020 that firms will protect earnings by idling operations and firing workers if required. Those who keep their jobs may cut back on discretionary spending. Their excess savings will gravitate to stocks even as pain accumulates in smaller firms that don't trade on public markets.

Another reason for optimism is the expected response of authorities. That's based, once again, on last year's experience. If more infectious variants of the disease make a national lockdown inevitable, the Finance Ministry and the Central bank might come together to offer moratoriums, State-guaranteed loans and other liquidity-enhancing measures to make up for disappearing cash flows. Sure enough, the Reserve Bank of India Wednesday announced repayment relief, as well as 500 billion rupees ($6.8 billion) in three-year funding at its policy rate of four per cent for banks to extend to vaccine makers, hospitals and oxygen suppliers.

There is no doubt more elbow room for policy action than existed just a couple of months ago. Bond and foreign-exchange markets have given up opposing further fiscal-monetary easing. Traders, who were pulling long-term yields on government securities higher or pushing the rupee lower, have stepped aside. Just like last year.