India’s second wave sparking fears of a global contagion

The escalating surge of Covid infections in India is showing no signs of abating – and has triggered growing concerns about its spill-over effect on the country's economy as well as on the rest of the world

India’s second wave sparking fears of a global contagion
Covid relief supplies from the US arrive in India. Photo: Reuters  

(ATF) The escalating second wave of Covid infections in India that is showing no signs of slowing down is intensifying the downside risks to gross domestic product (GDP) – and posing a significant contagion risk to other countries and regions as well, experts say.

"In addition to the substantial loss of life and significant humanitarian concerns, S&P Global Ratings believes the outbreak poses downside risks to GDP and heightens the possibility of business disruptions," the rating agency said in a note released on Thursday.

In another note on Tuesday, global brokerage house Nomura said that other geographies in Asia-Pacific, in particular, were susceptible to contagion from the highly infectious variants of the virus present in India, given the low ratios of vaccination in the region.

Also on ATF: Chip and container shortfalls drag China's factory output back 

While only about 9% of the country’s 1.4 billion people have received a vaccine dose since January, India does not have enough stockpiles to keep up with the second deadly wave of infections, despite being the world's biggest producer of vaccines.

Several Indian states have run out of coronavirus vaccines a day before a planned widening of a nationwide inoculation drive from Saturday, which deals another blow to India's mammoth efforts to beat the raging Covid surge.

Forming a curve that looks like a high-rise, India reported close to 380,000 Covid cases and over 3,500 deaths over the last 24 hours, marking the seventh straight day of fresh cases numbering over the 300,000 mark.

According to Christopher Wood, global head of equity strategy at Jefferies, the critical issue for India and the rest of the world is, that two questions on the country’s second wave remain unanswered – whether the vaccines are effective against the new (India) variant B.1.617 ravaging the sub-continent and whether the new variant is now beginning to show up elsewhere.


Already France has detected its first cases of contamination with the B.1.617 variant of the novel coronavirus, the country's Health Ministry said on Friday.

French Health Minister Olivier Veran added in a radio interview that it was still unclear if available Covid vaccines were effective against the Indian variant, and that the danger of this variant must not be underestimated.

Wood also says, in the absence of concrete evidence that the second wave has peaked, the Indian economy and the stock market have become potentially vulnerable while the renewed mobility restrictions in India has increased the potential risk of a renewed deterioration in asset quality of Indian corporates.

“The Nifty Index [a benchmark stock index] now trades on 20.2x one-year forward earnings, compared with a ten-year average of 16x, though down from a peak of 22.3x reached in mid-January. One explanation is continuing hope that the government will not announce a national lockdown. A second is that many of those who panicked and sold during the national lockdown in the second quarter of last year probably missed the explosive rally off the bottom,” Wood wrote in his latest weekly newsletter GREED and Fear.


According to ratings agency ICRA, the rising infections have also already started denting India’s economic recovery which is getting reflected in Indian banks’ sliding credit growth that had a record low in fiscal 2020-21.

Credit growth touched a record low of 5.6% in financial year 2021, recently released Reserve Bank of India (RBI) data showed, and it slipped even further in April.

"We were estimating credit growth of 8-9% for this financial year, but due to the rise in Covid-19 cases, a higher mortality rate and lockdowns in several parts of the country, downward risks have arisen," said Karthik Srinivasan, analyst at ICRA.

While New Delhi has been maintaining that it does not plan to impose a nationwide lockdown, an increasing number of states have imposed harsher restrictions while others are contemplating extending existing lockdowns.


Karnataka for instance, recently imposed a 14-day state-wide lockdown while the Allahabad High Court has urged the Uttar Pradesh government to follow. Maharashtra, the worst hit state said on Wednesday that its lockdown, enforced on April 14 and were to end on April 30, will be extended by another 15 days beyond April 30.

Capital city Delhi, too, has extended its lockdown by a week till May 3.

Such localised lockdowns disrupt daily work and related economic behaviour, which could drag out the recovery of revenue and earnings of some corporates sectors, S&P said.

After a predicted 7.5% contraction on average in the fiscal year that just ended in March, an April 26-29 poll of nearly 50 economists showed output expected to bounce back and grow 10.4% this year. That consensus was just a small downgrade from 11.0% growth predicted four weeks ago.

Nomura also indicated growing downside risks to its 11.5% forecast for India's FY22 growth as business activity suffered its steepest weekly decline in over a year.

Also on ATF:

World pledges aid as India battles Covid tsunami

Second wave to set India back by two years, worsen global poverty

asia India's Second Wave Jefferies Christopher Wood US Aid to India India's Vaccine Shortage