CORONA VIRUS PANDEMIC: REACTION OF INDIAN FINANCIAL MARKETS

Abstract

The world is passing through an unprecedented situation caused by the spread of novel corona virus. The entire world moved into a lockdown mode during the early months of 2020, resulting in substantial reduction in the economic activity, increased unemployment and tremendous pressure on the healthcare sector. Almost all nations in the world were affected by the pandemic. The financial markets across the world reacted quickly to the economic reality and went on a downward spiral at a rate not witnessed in the past. Shadowing the global markets, Indian financial market also went through lot of turbulence during the first three months of 2020. But the markets recovered during the next few months. In the light of these developments, the current study attempts to understand how various markets in India reacted during the time of the pandemic. It also looks at the interrelationship between the markets and how the market volatility behaved during this period. Finally, an examination of the factors responsible for the recovery during the later months is carried out. The study uses data related to stock market, commodity market and currency market for a period of seven months from January to July. The entire period of study is divided into three phases: pre-lockdown, lockdown and post-lockdown. Rates of returns generated by the markets during each of these phases are compared. Granger causality test is used to examine the influence of markets on each other. Generalised Autoregressive Conditional Heteroskedasticity (GARCH) model is used to analyse the behaviour of volatility during the period. It is found that the stock markets reacted sharply during the pre-lockdown period and recovered during the lockdown and post-lockdown phases. www.ijcrt.org © 2021 IJCRT | Volume 9, Issue 1 January 2021 | ISSN: 2320-2882 IJCRTB020025 International Journal of Creative Research Thoughts (IJCRT) www.ijcrt.org 215 The banking and financial services sectors were the most affected, whereas IT and pharmaceutical were the least affected. The market volatility was high during the recovery phase. The recovery of market was mostly led by the shares of technology based firms and positive inflow from Foreign Institutional Investors (FIIs).