What should investors expect from Indian equity markets going forward? In our latest Perspective, we address this question from several angles, starting with a discussion of the country's response to the COVID-19 pandemic. We also explore the current macroeconomic environment and share our views on opportunities for investors.

Saving lives and livelihoods in the face of a global pandemic

India's government acted quickly to close its international borders and impose a nationwide lockdown, moves which the World Health Organization commended as “tough and timely actions to stop COVID-19.” In discussions with family and friends living in India, we hear that controls on movement have been quite strict, with many residents in big cities limited to an assigned two-hour window during which one household member is permitted to venture out for essential purchases.

We believe the early, severe lockdown was necessary in order to buy time and flexibility to bolster the nation's health care infrastructure as the pandemic unfolded. India's health system is generally regarded as overstretched—for example, the World Bank reports India had only 0.9 physicians per 1,000 people in 2018, compared to 2.8 in the United Kingdom. Since the social distancing measures have gone into effect, significant efforts have been directed toward growing testing capabilities as well as increasing containment, isolation and ICU (intensive care unit) capacity.

In recent weeks, the government has gradually expanded its focus from saving lives to also saving livelihoods. India is largely a country of daily workers: At the bottom of the pyramid are many people who earn today, eat today and repeat the process tomorrow. The stringent lockdown has ground the economy to a standstill, seriously impacting the livelihoods of people who depend heavily on daily cash earnings to support their families. We are observing a growing realization that, if the lockdown continues, the cost of the economic downturn may create a major humanitarian crisis in India. As a result, the government is taking incremental steps toward re-opening the economy, starting by bringing production and manufacturing facilities back online, which enables many people to begin earning daily wages once again.

Assessing the macro landscape

The government recently announced a sizeable rescue package of both fiscal and monetary support. The stimulus package is larger than many expected, showcasing the boldness for which Prime Minister Narendra Modi is known. The central government, as part of fiscal measures, has announced a credit guarantee scheme worth US$40 billion aimed at incentivizing banks to lend to MSMEs (micro, small, medium enterprises). In very risk-adverse environments, banks become hesitant to take on credit risk and are slow to lend to consumers and businesses. To counteract this issue, the government's credit guarantee scheme is designed to help incentivize banks to increase their lending.