One month of lockdown: How did financial markets perform?

India has completed one month of lockdown to battle the coronavirus pandemic -- during which the equity indices surged, the rupee turned extremely volatile and bond yields eased.

Here is how different markets behaved in one month of lockdown:

Equities: Despite a steep rise in the unemployment rate and a substantial decline in the labour force participation as the economy has come to a near abrupt halt, the equity markets have seen a steep rise. It was primarily on account of low base and expectations of a second and bigger stimulus package. The Indian benchmarks 30-share BSE Sensex and 50-share NSE Nifty surged by 22.2 per cent and 17.3 per cent respectively.

The Indian indices outperformed global peers by huge margins: NASDAQ rose by 15.75 per cent in the period, Dow by 10.8 per cent, S&P 500 by 13.07 per cent, and KOPSI by 10.81 per cent.

In the due course, the equity investors have recovered one-third of the wealth that they had lost in the March mayhem -- recovering Rs 18 lakh crore of the Rs 58 lakh crore.

Despite this, Indian markets continue to be in the bear territory -- with indices down over 25 per cent from their life highs.

However, the buying continues to be driven by domestic investors, with foreign funds withdrawing a net of Rs 16,291.72 crore from the Indian markets during this period.

Rupee: The rupee continued to be volatile during the past month -- trading in the range of 74.85 and 76.88 against the US dollar.

The rupee has touched its life-lows multiple times in the past month of lockdown, despite the Reserve Bank trimming the currency market timings by almost four hours with effect from April 7.

The crude oil, the primary determinant of the rupee value, has been touching historic lows due to subdued demand, with West Texas Intermediate (WTI) futures even touching negative. However, the depreciation of the rupee was driven by the outflow of the foreign funds all this while.

Bond Market: The yields on the government securities have fallen by 32 basis points to 6.06 per cent from 6.38 per cent in the past month.

The primary factors that drove the yield lower for the benchmark GSec are: RBI rate cuts, safe-haven demand, OMO operations, surplus liquidity in the banking system, and expectation of additional measures by the RBI to support the relief measures taken by the government.

However, foreign fund outflows, lower trading volumes, and an increase in government borrowings have limited the fall in the yields.

The US and UK 10-year government bond yields (both of whom continue to be below $1) have, however, witnessed a sharper fall in yields than Indian government bonds. This is due to the rush to safe-haven buying of the US and UK government securities by global investors.