With new confirmed Covid-19 cases spreading to states outside Maharashtra, the risk of a second wave in India has risen materially, Nomura said in a research note. "We believe this can lead to near-term growth concerns and delay market expectations on the timing of policy normalisation," it added.
"However, we expect only marginal negative growth effects, because government restrictions are less stringent, the goods sector continues to chug along and households and businesses have adjusted to the new normal," Nomura said.
Over the medium term, progress on vaccinations, stronger global growth and lagged effects of easier financial conditions are likely to act as growth tailwind, it said.
Nomura said that India is potentially entering its second wave of Covid-19. The first wave peaked in the third week of September with daily cases at 92,000, with cases declining to a low of 11,000 in mid-February. However, over the past one month, daily cases have risen to 25,000 per day.
While the initial pick-up was mainly led by Maharashtra, cases have now risen in other states as well, such as Punjab, Gujarat, Madhya Pradesh, Tamil Nadu, Chhattisgarh, Delhi, West Bengal, Haryana, Karnataka, Uttar Pradesh among others, in varying paces, Nomura said.
India is likely to witness higher infection cases in coming months, the research said.
The trend still appears higher. On a 7-day moving average basis, daily cases are rising at 34 per cent week-on-week (as of March 16), with a faster pace in Maharashtra (46 per cent) and slower but rising in all other states (18 per cent). The positivity rate is gradually inching higher: it rose to close to 3 per cent in mid-March from a low of 1.5 per cent in mid-February, although still lower than in July last year (11-12 per cent).
The upcoming elections in five states (Assam, West Bengal, Tamil Nadu, Kerala and Puducherry) scheduled between March 27 and April 29 may also be a trigger. Hence, current trends suggest risk of a second wave in the coming months. On the positive front, the mortality rate remains low, and there is no broad-based evidence of rising hospitalisation rate, although both trends need to be closely monitored, the research said.
On the vaccination front, India has so far inoculated 2.3 per cent of its population, presently targeting senior citizens and people aged above 45 with co-morbidities, after frontline workers. The 7-day average inoculation rate is around 1.4 million per day and around 0.6 per cent of population is being inoculated every week.
Nomura said at this rate, India will inoculate close to 30 per cent of the population by the end-2021. There are three factors that may help India achieve its vaccine pivot point much earlier: first, serological studies suggest that some portion of the population has already been exposed, second, a number of new vaccines have been reported to be on the offing from Johnson & Johnson, Sputnik V, and Covovax and third, as private hospitals become involved, the pace of vaccinations should also pick up.
"In our baseline, we assume that India will vaccinate 30 per cent of the population by end-2021 and attain its vaccine pivot point sometime in Q3. Hence, while rising virus cases are a risk to near-term activity, this should become less of a threat over the coming quarters," Nomura said.