HMPV Not the Concern Economic Fundamentals Are

As the Indian stock market reopened on January 6 after the holiday season, it was greeted with unexpected turbulence. The BSE Sensex plunged over 1.5 per cent, and Nifty 50 mirrored the decline, raising concerns among investors. The broader market suffered more and fell by more than 2 per cent. Headlines pointed to the Human Metapneumovirus (HMPV) as a potential trigger, particularly impacting travel and tourism stocks. But is the HMPV scare truly responsible for this market volatility, or is it just a scapegoat?

While the HMPV scare may evoke memories of the corona virus pandemic, attributing this downturn to the virus appears far-fetched. Historically, the markets rarely fall twice for the same reason. When the first corona virus case emerged in December 2019, the markets responded with sharp declines— China’s stock market fell by 7 per cent within weeks. In contrast, this time around, the Indian market dipped over 1.5 per cent, but the global markets, including China, showed relative stability

HMPV, first identified in 2001, is a respiratory virus causing symptoms akin to the common cold or flu. Although it has led to increased hospitalisations, particularly among children under 14 in China, it is not viewed as a severe threat by the medical community. Indian health authorities have reassured the public that there is no cause for panic. The current volatility seems to be driven more by global and domestic economic concerns rather than health scares. Policy uncertainties in the U.S., with a new administration taking office, are weighing on investor sentiment.

Given America’s dominant role in the global markets, any shifts in its economic policies create ripples across the globe. On the domestic front, India’s first advance estimate for FY25 projects real GDP growth at 6.4 per cent, a slowdown from the 8.2 per cent recorded in FY24. This estimate falls slightly below the Reserve Bank of India’s projection of 6.6 per cent, reflecting a cooling economy. This slowdown is evident in the equity markets. Banking stocks, which carry significant weight in indices, are underperforming.

HDFC Bank, for instance, reported weaker-than-expected credit growth, falling to low single digits in its latest updates. The slowdown raises concerns about broader economic weakness and asset quality, which may take several quarters to recover. We see such weakness leading to foreign institutional investors (FIIs) sustaining sell-offs. After selling in record numbers in the last quarter of 2024, January has been no exception, further compounding the market jitters. Microfinance companies, already among the worst-performing sectors in the past year, continue to face challenges.

In this issue, we present a special report analysing the reasons behind their underperformance and what the recent quarterly numbers indicate for the sector’s outlook. Our cover story this month spotlights 10 prominent Large-Cap stocks that underperformed the equity indices in 2024. Despite their widespread ownership, these stocks faced challenges due to economic headwinds. Is now the right time to invest in these laggards? We take a comprehensive look at their performance and prospects. While recent market movements may seem alarming, they appear to be driven more by economic fundamentals and global uncertainties than fears surrounding HMPV.

For you, this is a time to focus on long-term growth potential and avoid knee-jerk reactions to short-term volatility. History shows that markets stabilise as clarity around policies and earnings emerge. The current climate serves as a reminder that patience and a focus on fundamentals remain the key to navigating market turbulence. Of course, it is also paramount that we keep an eye on how HMPV is spreading across the globe and whether it will impact trade and finance the way the pandemic did in 2020, yet, let’s look beyond the noise and keep our eyes on the bigger picture. Stay tuned for more insights and analyses in the upcoming editions. Happy investing!

RAJESH V PADODE
Managing Director & Editor