Investigating the temporal relationship between the outbreak of COVID-19 pandemic and fluctuations in market indices

Abstract

The research paper develops an understanding of how Pandemic (COVID-19) affects the Indian Stock Markets and economy. We analyzed the most impacted industry due to COVID Crises using scenario-planning Methodology. We use data modeling to understand the relation of COVID numbers with indices across the globe, Indian exchange rates, foreign and domestic investment in India, and the crisis period. The literature review covers the impact of other confounding variables on the stock market, such as investor sentiments and twitter data. Besides, we also incorporate the political and global factors in our study through shock or a one-time change. We find that the effect of COVID sentiments played an early role in the Indian economy through global correction. Indian stock market hit low before the first Lockdown. It effectively gained in the lockdown period for multiple factors as an increase in retail, FII, and DII investment and an increase in market cap with global correction. We also find that markets do not only govern by Indian sentiments but also global factors dictate the trend. The direct relation of the pandemic with the stock market is negatively correlated initially due to the realization of its impact, however, later with sentiments settling the market regains and inches closer to its all-time high.