Can India's economy be impacted by the new Covid Variant?

By Consultants Review Team Tuesday, 26 December 2023

Despite an increase in Covid cases with the new variant JN.1, health officials are increasing monitoring, but the economy and financial sector may stay unaffected for the time being. While Covid instances are on the rise, experts say the severity and dissemination are still limited. If and when the case count rises enough, the new Covid version may start to affect the real economy.

"If this is a minor outbreak, it will have little impact on economic activity." The first Covid wave resulted in a national lockdown, whereas the second wave was decided by individual states. The third wave, or Omicron, did not have a lockdown per se," said Devendra Kumar Pant, Chief Economist and Head (Public Finance), India Ratings & Research, adding that it is still early days and that the impact on the economy will depend on the policy response. 

According to the health ministry, India recorded 412 Covid-19 cases on Tuesday, bringing the total number of active cases to 4,174. In India, 69 JN.1 infections have been reported. The government, on the other hand, has stressed that there is no need to panic but has recommended individuals with co-morbidities to wear masks as a precaution.

Market impact is Limited

The S&P BSE Sensex and NSE Nifty 50 fell on December 20 due to a variety of factors, including the recurrence of Covid-19 instances in India, but markets have since rebounded. 

"Our sense is that the rising Covid cases in India warrant caution," said Manish Chowdhury, Head of Research at StoxBox, "but the severity is likely to be limited, as evidenced by lower hospitalisations." With India performing well in managing the contagion the last time, we believe that logic will prevail, and we may not see a significant market fall from these levels." 

Kaushik Dani, Fund Manager - PMS, Abans Investment Managers, agreed and stated that the situation must be closely followed to determine whether it spreads to other states and how lethal the variety is. "However, preliminary reports indicate that it is not as fatal as previously thought, and that over-preparedness to combat the virus is now much better than in the past." As a result, the market's uneasiness will be determined by speed, quantity, and fatality rate. "At the moment, it does not appear to be a major risk for markets," he said.

According to Amit Goel, Chief Global Strategist at Pace360, residents should not overreact to the government's actions, and there is no cause to be concerned. "In the short run, we expect the market to consolidate as investors resort to profit booking and become wary of the possibility of an increase in Covid cases, particularly in Kerala and Karnataka, making them cautious in the market," he added. 

India Inc, which already has a hybrid structure in place as well as work-from-home options for employees, appears to be poised for any additional revival in cases. "We already have a hybrid structure of working in place, which gives people the option to work from home," a Nestlé India spokeswoman stated. Furthermore, we have safety safeguards in place, such as hand sanitizers positioned at several spots on each floor. After 2020, we designed our office so that colleagues may keep sufficient social distance at work. We also have an internal safety committee that is monitoring the situation." 

Travel, Tourism, and Insurance may be Impacted

However, scientists warn that if the spread worsens, contact-intensive sectors such as tourism, hospitality, and entertainment may suffer. However, despite the increased number of cases, most travel and tourist organizations believe that demand will be strong throughout the next holiday season. In reality, the number of reservations is already increasing. 

According to companies, this season remains a preferred time to travel for Indians, not only for families and multigenerational families, but also for millennials and young professionals. "Indians across segments are planning multiple mini-cations, particularly to no-visa and easy visa short haul destinations," said Rajeev Kale, President & Country Head, Holidays, MICE, Visa - Thomas Cook (India) Limited.  

According to SOTC Travel, despite rising airfares and hotel charges, Indians are willing to raise their holiday spending by 20-30%. "We are witnessing interest in short getaways/drivable destinations, preference for eclectic stays and unique accommodations, outdoor and adventure experiences," stated Daniel D'Souza, President & Country Head - Holidays, SOTC Travel. 

According to Radisson Hotel Group, the sector has learned the value of resilience, adaptability, and prioritizing the well-being of both customers and employees in the face of recent setbacks. "By 2024, the emphasis will be on technology-driven conveniences, sustainability, and experiential travel," stated K.B. Kachru, Chairman Emeritus & Principal Advisor, Radisson Hotel Group, South Asia. 

The reappearance of Covid-19, according to Rahul M Mishra, Director and Co-Founder of Policy Ensure, is worrying, particularly for the Indian insurance business. "As the health-care crisis worsens, more people are likely to seek health-care coverage." Furthermore, the number of people purchasing life insurance policies will rise. "In general, Covid-19 will have a moderate impact on the insurance industry," he predicted. 

To handle these changes, he added, focus on clear communication so clients understand their policies better, and working closely with healthcare providers can also make claims processing smoother.

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Real Estate and Financial Firms are Bracing for Increased Demand

However, industries such as real estate and internet financing are well equipped for increased demand. According to Rohit Arora, CEO and Co-Founder of Biz2Credit and Biz2X, fintech companies are set to play a critical role as demand for secure and efficient digital financial services grows. "However, concerns about economic recovery may impact lending practices and investment strategies," he wrote. 

According to Gaurav Mavi, Co-founder of BOP Group, amid the obstacles posed by the COVID-19 outbreak, there has been a noticeable movement in consumer behavior towards larger homes, with individuals choosing safety precautions. As a result, real estate developers shifted their focus to more expensive developments, resulting in significant growth in the sector. "The real estate sector maintains its upward trajectory, demonstrating resilience in adapting to the pandemic's challenges." Despite concerns about new Covid variations, the industry is projected to be unaffected, allowing it to sustain its good trajectory," he said.


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