Will Covid-19 vaccines inject hope in the market?

As the world has begun its vaccine rollout, and India follows suit, there seems to be some light at the end of a long year of Covid-19 infections and rising death tolls. Vaccines have certainly been a triumph of modern science but they have had other impacts as well. The markets have been responding well to developing news around rollouts of vaccines and emergency use authorizations across the world, and India as well. 

In India, the Sensex is within striking distance of the 50,000 mark, rising for 10 weeks straight, registering the longest winning stretches in over a decade. The biggest reason for this optimism has been the vaccination drive. Investors hope that the rollout will be the stepping stone for economic activities and growth. 

The sentiment from foreign institutional investors has also been one of hope, amidst the news of the vaccine rollout in India. Reports suggest that Indian equities have stood to gain over Rs 1.6 lakh crore from FIIs in 2020, the highest since 2012. This FII confidence has continued into January 2021, with reports suggesting that FIIs invested a little over Rs 12400 crore in equities between January 1 and 11th. 

Pharma stocks have outperformed the markets, and have come to hold the spotlight through 2020. In fact, the BSE Healthcare Index got a just over 60 per cent boost, beating other sectoral indices in 2020. 

Why the markets could do with vaccine rollouts

In a sense, vaccines could just be the shot in the arm that the markets need as well, and quite literally at that. There’s a reason why too. India’s pharma sector caters to over 50 per cent of the demand for vaccines across the globe. According to IBEF, India stands third globally for production of pharmaceuticals in terms of volumes, and is the largest generic drug supplier globally. 

The markets have been reacting to developments in the pharma and vaccine sector. In November, Pfizer India Ltd shares rose 4 per cent amidst speculation that it may be in talks with the government for a deal on vaccines. Later, as India approved the vaccines from Serum Institute whose version has been developed by AstraZeneca / Oxford and Bharat Biotech, Google results in early December suggest an increased search for Bharat Biotech and Serum Institute share prices, although they are not listed. This reflects the interest in the markets among Indians. 

How will vaccines come as a lifeline for the markets in the future?

The vaccine rollouts currently being announced and more in the pipeline mean huge logistics. There are airlines involved, freezer manufacturers, vial makers, disposable need supplies, and lab technicians, among others. This will set off a ripple effect, with several industries and sectors coming into the picture. Take for instance, cold storage. All vaccines need cooling and therefore there will be demand in cold storage facilities and freezer makers, whose stocks may go up. According to government information on cold chain logistics, India has about 27,000 cold chain points, 76,000 cold chain-related equipment, 700 reefer vans and 55,000 cold chain handlers. This may need expansion as more vaccines get rolled out through the year.

According to market research firm, IMARC Services, the rising demand for cold storage solutions will boost growth of the Indian cold chain market by 17 per cent, touching Rs 1.7 trillion. 

The same is true of other allied sectors and companies. Take the case of vaccine distribution. Airlines and logistics companies may see a rising demand. Commercial vehicle makers may see an uptick in demand as there is need for last-mile delivery for dispatching vaccines. Packaging firms may see an upsurge in demand. Similarly, glass / plastic product manufacturers — those that make vials will go up. 

As the vaccination drives gather steam, there may be swings in prices of stocks and markets will react to the success of the rollouts. There are several unknowns, including immunity duration or whether the vaccine will be an annual affair or a one-time drive. This will also impact the markets and earnings of companies that are directly or indirectly affected. 

Return of economic activity

Meanwhile, there are four other vaccines in the pipeline, including the Zydus Cadila vaccine, Gennova, Sputnik V and Biological E. The arrival of more vaccines will only generate renewed interest in the markets among investors. But more importantly, the vaccine programmes will ensure that the economic activity increases and there is greater mobility, leading to a boost in many sectors. Hospitality, entertainment and travel, which were hit badly during the pandemic, may see a revival with the success of vaccine programmes.

According to Associated Chambers of Commerce and Industry of India (Assocham), India is showing signs of a V-shaped recovery in 2021 on the back of consumer confidence returning and “robust financial markets”.

Conclusion

Summing up, the arrival of vaccines have not just brought hope for public health but also for the economy and the markets, as there is bound to be a resumption of economic activity. Demand for sectors like pharma will create a domino impact and several allied sectors will come into play. Vaccines may just be the shot in the arm the markets need for 2021 and beyond.