Received: 27 November 2023 Revised: 25 December 2023 Accepted: 31 December 2023

DOI: 10.48309/JMPCR.2024.427347.1041

FULL PAPER

Impact of pandemic on health care ecosystem - A

study of Indian health care industry
Ashok Kumar Sar | Kshirod Kumar Panigrahi *

Purpose: This article made an effort to evaluate the effect of the

aKIITSchool of Management Campus-7, KIIT pandemic on the healthcare ecosystem. It aimed to analyse the
Bhubaneswar 751024 Odisha, India performance of the pharmaceutical industry, hospitals, and
firms engaged in diagnostic and laboratory activities.
Design and Methodology: The performance of the healthcare
firms has been assessed by studying the stock price movement
of these firms using event study methodology. The market
model and the Fama & French three-factor model have been
used to estimate the normal or expected return. The abnormal
return which is computed by deducting the expected return
from the actual returns across the event period helped the
researcher evaluate the performance of the healthcare industry
during the pandemic. The daily returns data from 1st June 2019
to 13th April 2020 of 22 firms listed on the Indian stock
exchange has been used for the study. The standard t-test
(parametric) and the Kollari & Pynonnen generalized rank
(GRANK) test (non-parametric) have been used for testing
hypothesis.
Results: Results showed that the cumulative average abnormal
return (CAAR) for all 22 firms grouped together was positive
and statistically significant. The CAAR for Nifty Pharma and BSE
Healthcare was also positive and statistically significant. The
result confirms that the pandemic had a positive impact on the
Indian healthcare industry. This article helped researchers and
investors appraise the performance of healthcare industry
during pandemic.

*Corresponding Author: KEYWORDS

Kshirod Kumar Panigrahi
Pandemic (COVID-19); healthcare industry; abnormal return;
event study; expected return; cumulative average abnormal
Tel: + 9178464263 return (CAAR); index return.

Introduction

COVID-19 has been the most dreadful and many industries, like airlines and hotels,
epidemic in the 21st century. It had a were completely closed for months together.
pernicious impact on human health, Modern economic activity is immensely
economics, and social activities [1]. Since the interconnected and interdependent. Though
physical health of humans was in danger, it all business segments were impacted by the
was bound to have an adverse impact on pandemic, the extent of the impact on a
almost all economic activity [2]. Many particular segment of business was dependent
industries witnessed restricted operations, upon its independence of operation,

J. Med. Pharm. Chem. Res. 6 (2024) 519-536 P a g e | 519

 P a g e | 520 A. K. Sar & K. K. Panigrahi

substitution of man by machine, adaptability Literature Review

of digital channels, and its utility for society at
large. Healthcare remained at the top of the Healthcare System
list with respect to its utility for mankind. The
The healthcare industry encompasses
pandemic was a formidable challenge for
hospitals, pharmaceuticals, medical devices
healthcare practitioners throughout the
and equipment, diagnostics, medical
world. They had the tough task of treating the
insurance, and home health care, including
affected patients and preventing the disease
telemedicine, and medical tourism. An
from spreading its tentacles. The industry was
effective and efficient healthcare system is
engaged in inventing an effective drug and a
essential for the overall development of the
vaccine. The administration was busy
country. The World Health Organization
controlling the disease and ameliorating the
(WHO) has identified the fundamental
health care infrastructure to take care of the
components of a healthcare system as “the
growing number of infected people. Demand
delivery of effective, safe, and quality
for prescription medicines, vaccines, and
interventions; an adequately trained and
medical devices was growing manifold [3].
distributed workforce; a health information
There was a shortage of antibiotics and
system that analyses and disseminates
vitamins in the early stages of the pandemic. It
reliable data; safe and efficacious medical
took around 2-3 months to increase
technologies that are cost-effective and
production capacity and boost distribution to
accessible; a financing system that raises
bridge the demand-supply gap. There was a
adequate funds to ensure coverage of the
panic reaction among most of the citizens, as
population from any financial catastrophe;
most of them were not prepared for this
and a good governance system to oversee the
event. There was an attempt by all, especially
administration of these building blocks.” The
the vulnerable sections like senior citizens
quality of healthcare is evaluated on the basis
and children, to jack up immunity. However,
of the accessibility and affordability of health
the supply chain was not able to operate at its
care facilities. As per the report published by
full capacity, causing disruptions to
verified market research, the value of world
production, supply, and distribution [4].
healthcare industry in dollar terms is US$
Online drug sellers were blooming to fill the
10.30 trillion in 2021 and is estimated to
gap. It was both a difficult time and an
become US$ 21.06 trillion by 2030 [5].
opportunity for the health care ecosystem.
Increasing access to health care facilities and
As we know, the stock market is a barometer
containing the cost of health care facilities are
of the performance of an individual firm, a
the two important responsibilities of
sector, and the whole industry. This article
policymakers. Expenditure on healthcare as a
tried to assess the effect of the pandemic on
percentage of GDP is not a perfect indicator of
the healthcare industry by measuring the
a good health care system because there are
performance of the stocks of the firms that are
countries that spend the highest amount on
part of the healthcare ecosystem. The
healthcare, but they do not appear at the top
performance of the healthcare industry in
of the list of the best healthcare provider
terms of stock prices was assumed to be
countries. For example, the US spends the
positive, as the health care ecosystem was
highest percentage (16.6%) of its GDP on
expected to benefit from the event. The
healthcare, followed by Germany, France, and
temporary gap in supply and demand of drugs
Japan. But, it was found to appear last in the
used to treat COVID-19 and the consequential
list prepared by the Commonwealth Institute
health hazard were expected to enhance the
while making a study of the healthcare
focus on the health care industry.
Toxic effects of bintaro (cerbera manghas) … P a g e | 521

systems of 11 high-income countries. The manufacturing and to incentivise innovations,

study used parameters like accessibility, the Government of India (GoI) included the
process of care, administrative efficiency, sector in its “Aatmanirbhar Bharat” program
equality of treatment, and the quality of through the production-linked incentive (PLI)
healthcare outcomes. Norway, the scheme. Under the scheme, GoI disbursed the
Netherlands, and Australia were found to top first tranche of investment of US$ 1.83 billion
the list with the best facilities [6]. As per the in March 2020, followed by an investment of
Legatum Institute report, Singapore has the US$ 2 billion in March 2021 to step up
best healthcare facilities, and India has 112 production of APIs (active pharmaceutical
ranking [7]. ingredients).
India has become a bright spot on the global India has justified its name “pharmacy of the
healthcare map as it continues to develop world” by supplying the COVID-19 vaccine to
state-of-the-art medical infrastructure and more than 150 countries since the outbreak of
focuses more on research, innovation, and the pandemic. It is the largest manufacturer of
digitisation of health care services. This sector vaccines, producing nearly 60% of all
is a major contributor to Indian economy in vaccines. Its pharmaceutical exports grew by
terms of revenue and employment. The 18% (US$ 4 billion) from FY 20 to FY 21; the
government’s spending on health care was highest ever export growth, on account of the
2.1% of GDP in FY 2023 and is expected to high global demand spurred by the pandemic.
reach 2.5% of GDP by 2025. The growth of the As the global supply chain system was
Indian health care ecosystem could be severely impacted by the pandemic, the
attributed to an increase in the elderly pharmaceutical export promotion council of
population, higher disposable income, India (Pharmexcil) conducted a study to
enhanced insurance coverage, better health identify the critical APIs and major raw
awareness, an increase in stress levels, growth materials that it was importing mainly from
of medical tourism, and an increase in lifestyle China, which helped the Department of
diseases. The hospital segment is the highest Pharmaceuticals develop the PLI scheme to
contributor to the Indian healthcare market, encourage the manufacturing of those
with 70% of the market share, followed by products to reduce import dependence. The
pharmaceuticals at 20%, medical technology Indian healthcare ecosystem is based on three
and others at 10%. pillars, i.e., accessibility, affordability, and
The value of Indian pharmaceuticals market is quality.
currently US$50 billion and is estimated to Since pandemics have a collateral impact on
become US$150 billion in a decade. In terms health and aggravate pathological symptoms
of volume, it is the third-largest and chronic ailments in the majority of the
pharmaceuticals market in the world and the population, the focus has been on
largest supplier of generic drugs. Therefore, it nutraceuticals to ameliorate overall immunity
is popularly called the “pharmacy of the and resistance to illness. The pharmaceutical
world”. The cost of production of drugs in industry is shifting its focus from illness to
India is 33 percent cheaper than that in the wellness. With the rise in medical
US, which offers a competitive edge to Indian infrastructure, the medical instrument market
drug manufacturers. However, Indian drug in India is growing at 2.5 times the rate of the
manufacturers were mostly manufacturing global average and is the fastest among all
drugs with pre-existing formulations at lower emerging markets. The medical instrument
costs. There was a lack of focus on innovation market in India is estimated to be US$11
and the development of new formulations. In billion this year and is forecast to reach US$50
order to make India self-reliant on drug billion by the end of the decade.
P a g e | 522 A. K. Sar & K. K. Panigrahi

The pandemic Within a short period of 25 days, the total

number of global infections reached 1 million
The first official case of Corona virus disease on 2nd April 2020. The figure was alarming
(COVID-19) was detected in Wuhan, Hubei enough to send a wake-up call to explore
Province, China, on 31st December 2019 [8]. permanent prevention in the form of a
After a month, WHO declared the fast- vaccine. The WHO circulated guidelines for
spreading COVID-19 a public health wearing masks on 6th April as evidence of
emergency of international concern (PHEIC) airborne infections was found in many parts
on 30th January 2020. The number of of the globe. Though the infection declined in
infectious people reached 1,00,000 on 7th the summer, a fresh variant of the virus was
March, 2020 and after four days the WHO found in August, 2020. The number of cases
declared the COVID-19 pandemic on 11th surged with the emergence of the new variant,
March, 2020. China implemented severe and the total number of deaths reached 1
restrictive measures to contain the virus, and million by 29th September, 2020. The vaccine
as a result, the spread of the infection preparation through multiple phases of trials
decreased substantially. But in Europe, the reached the final stage and got the approval of
infection was increasing rapidly. Italy was the WHO for emergency use on 31st December,
worst hit by the virus, and the death toll rose 2020. The commercial production of vaccines
to 250 per day on 13th March 2020. Seeing the marked the beginning of the end of the
high mortality rate and the catastrophic pandemic. Since then, the vaccine has been
impact of the virus, the WHO reported Europe administered on a war footing to increase the
as the epicentre of the pandemic on 14th safety net. On 5th May, 2023, WHO formally
March,2020. A state of emergency was declared the end of the PHEIC. Many countries
declared by theUS on the same day, i.e. 14th have already started considering COVID-19 as
March 2020. Restriction on travel, lockdowns, an endemic disease, much before that. The
closure of offices and business establishments, statistics show that as of 13th April 2020, there
hand sanitisation, quarantine, contact tracing, have been 1773084 COVID-19 cases and
and social distancing were implemented 111652 confirmed deaths, which make it one
across the globe to control the virus spread. of the deadliest epidemics and pandemics.

TABLE 1 COVID-19 cases and deaths in top 10 countries and India as on 13th April, 2020 [17]

Name of the country No. of confirmed cases No. of deaths

The United States of America 524,514 20,444
Spain 166,019 16,972
Italy 156,363 19,901
Germany 123,016 2,799
France 94,382 14,374
The United Kingdom 84,283 10,612
China 83,597 3,351
Iran 71,686 4,474
Turkey 56,956 1,198
Belgium 29,647 3,600
India 9,152 308
Toxic effects of bintaro (cerbera manghas) … P a g e | 523

There was huge pressure on hospital potentially devastating for humans in

infrastructure owing to the sudden rise in economics, social, and physical terms.
COVID-19 patients and strict adherence to
isolation norms. This led to non-COVID Stock return and event studies
patients resorting to home care facilities.
Event study is a statistical method to evaluate
Many COVID patients with mild symptoms
how a significant event or events affect the
were also advised to stay home and seek tele-
performance of firm by studying the share
health advice. This trend is expected to
price movement of the firm. The early
continue in the post- COVID era where
researchers who used event study were James
patients are adopting digital modes of health
Dolley, John H. Myers and Archie Bakay and C.
care. With the adoption of Artificial
Austin Barker who made an attempt to assess
intelligence (AI), the health care sector is
how a stock split would affect stock prices,
transforming. COVID-19 created unexpected
and then Ball and Brown tried to assess the
rise in demand for antibiotics for treating
effect of income numbers on stock prices by
infections of the lungs, sedatives, and
collecting the income numbers of 261 firms
painkillers resulting in an increase in demand
for a period of 1957 to 1965 [9]. It was
to the tune of 100% to 700% since the
discovered that, though annual income data
beginning of January,2020. The Food and
was one of the most helpful sources of
drug administration (FDA) in United States
information for investors, but by the time the
declared a shortage of pharmacotherapies,
annual income figure was out, periodic
azithromycin, dopamine, fentanyl,
information regarding the firm was already
hydroxychloroquine (HQC), dobutamine,
inbuilt into its stock price. The study's
chloroquine (QC), heparin, propofol
findings support the efficient market theory,
dexmedetomidine, and midazolam.
which that all available information is factored
The rising demand of antibiotics, prescription
in stock price.Another path-breaking study
drugs, vaccines, ventilators, oximeters, and
was done by Fama et al. to understand how
other medical equipment was aggravated by
quickly the market absorbs new information
supply-side constraints due to disruptions in
[10].
the supply chain, lockdowns, panic buying,
The study was conducted collecting
and stocking. As China and India, the world’s
information regarding 940 stock splits from
largest producers of key starting materials
1926 to 1960. The results demonstrated the
(KSMs), active pharmaceutical ingredients
efficiency of the market, confirming the fact
(APIs), and also finished pharmaceuticals
that new information was promptly adjusted
were impacted by the pandemic, the global
to the stock price. After 1970, researchers
supply was curtailed. The long- term impact
tried to resolve the statistical and econometric
includes delay in drug approval, efforts to
issues in event studies to make it statistically
become self-reliant in pharmaceutical
valid [11-13].
production supply chain, and adoption of
Event study methodology (ESM) became the
digital health care facilities [3].
most popular method for determining the
Global social unrest and economic hardship
behaviour of stock prices in response to an
brought about by the pandemic resulted in a
event or series of events [14]. Since then,
severe recession. The widespread supply
event studies have been used for two major
chain disruptions caused a food shortage.
purposes: the first one is to test the efficiency
Apart from its terrible impact on health, it was
of the market, and the second one is to assess
too dreadfully contagious to engulf the whole
the extent of movement in the stock price of
human population in a very short time. It was
firm. The effect of an event on the value of a
P a g e | 524 A. K. Sar & K. K. Panigrahi

firm is immediately observed on the stock A few other studies discovered that the stocks
prices of the firm, in contrast to productivity- of pharmaceutical industries performed better
related impacts which take a long time to get during the pandemic and specifically during
reflected [15]. The ESM was predominantly the lockdown period [22-25]. In a study of the
utilized to assess the effects of company- effect of different events related to pandemic
specific events like mergers, acquisitions, (the WHO declaration, travel ban, lockdown,
investments, new products, innovations, etc. and stimulus package on stock markets of 25
Recently, this has been extended to include countries it was found that the initial reaction
macro-events like COVID-19. of markets was very high and gradually it
ESM is able to analyse how a particular event settled down as more information was made
affects changes in stock prices [11]. It helps in available [24]. Along with pharmaceutical
assessment of magnitude of impact of firm- stocks the diagnostic stocks also witnessed a
specific events like the issue of bonus shares, upward trend. The stock price of two largest
stock splits, investments, formation of joint diagnostic firms Dr. Lal Pathlabs and
ventures with strategic partners, dividend Thyrocare increased 20% and 14%,
declarations, capital infusions etc. which are respectively. Since March 23, 2020, the two
internal to the firm, and also macro-events main pharmaceutical stock indices, S&P BSE
like major policy changes, regulatory Healthcare and Nifty Pharma, have risen by
announcements, interest rate hikes etc. which roughly 36% and 42%, respectively. It was
are external to the firm. It attempts to noticed that almost all stocks have yielded
evaluate the effect of an event more negative return during 1st lockdown whereas
objectively as it deals with the data of the during the second stage all NIFTY Pharma
stock market, which is not controlled by stocks have shown positive return and
managers, leaving almost no scope for continued to generate higher return to the
manipulation of the performance of the firm. tune of average 77% till September 2021.
Stock performance is the perfect criterion for Overall NIFTY Pharma has outperformed
measuring the value of a firm, as it reflects all NIFTY with an average of 36% higher return
publicly available information [16]. The main during pandemic. A comparative analysis of
aim of ESM is to evaluate the quantum of extra major NIFTY sectoral indices revealed that
or abnormal returns gained by investors, NIFTY Pharma recorded highest gain of 75%.
consequent to the announcement of any Similarly though the S&P BSE Sensex declined
unanticipated event impacting a particular by 48% the healthcare sector registered 18%
firm or a business segment [17]. growth during pandemic [26].
A comparative analysis of seven largest
Impact of the pandemic on stock return of exchange traded funds (ETFs) by market cap
healthcare industry of each of financial, pharmaceutical, and
healthcare sectors revealed that the average
The Pandemic had significant negative impact
return of the ETFs of health care sector
on the pharmaceutical stocks in India, and the
showed the best performance and with
performance of pharmaceutical stocks was in
respect to volatility the pharmaceutical sector
line with that of the Nifty S&P BSE Sensex,
has the least volatility [27].
CNX Nifty, and Nifty pharma index [18-20].
Similar results were observed in a study of the Research gap
stock returns of eight countries: France, Spain,
China, Germany, Italy, the USA, Japan, and On analysis of the previous research works of
South Korea [21] . scholars, one clearly visible gap was
identified. That is, the scope of the study has
Toxic effects of bintaro (cerbera manghas) … P a g e | 525

not been extended to the whole health care awareness of health and hygiene. COVID-19
industry, of which the pharmaceutical has been a catalyst for attitudinal
industry is a part. As has been witnessed, the transformation towards healthcare. More and
COVID-19 impacted hospitals, diagnostics, more people are able to afford quality
medical equipment and pharmaceuticals. healthcare facilities. More people are getting
Therefore, it is essential to study the impact covered under health insurance, spending
on all these segments, which constitute the more on fitness and nutrition, and medical
healthcare industry. An econometric analysis checkups. Although the pandemic has caused
was suggested to discover the relationship huge disruptions in the supply chain and a
between the pandemic and financial markets decrease in non-COVID-19 illness treatments,
[24]. The requirement of widening the scope the healthcare industry was expected to make
of the research by adding more both short-term and long- term gains on
pharmaceutical companies and including account of the huge demand for antibiotics,
other sectors of the healthcare industry was nutrition supplements, and vaccines. On the
acknowledged [18]. technology front, there has been a large-scale
While numerous studies have explored the adoption of AI for providing remote
performance of pharmaceutical industry consulting and home health care. There has
during pandemic, none have specifically been a huge increase in the use of home
addressed its effects on the entire healthcare diagnostic equipment.
sector. Studying its impact on only
pharmaceutical companies is a narrow Methodology
approach and will only explain half of the
The study has adopted event study
story. It excludes other constituents of the
methodology to assess the performance of
health care ecosystem like hospitals and
health care industry by assessing the stock
diagnostic sectors. The immediate impact was
market movement during the pandemic. The
on the diagnostic segment, as there were not
major focus of the study is to estimate the
sufficient test kits available to confirm the
abnormal return (AR) associated with the
infection. Testing was very important, as early
pandemic. The inference regarding the AR
detection would save lives as drug
accrued during the event is valid if the
administration could be faster. Then there
following three assumptions of the event study
was also huge pressure on hospitals and
are fulfilled [24,29].
medical equipment like oxygen concentrators,
1. The market should be efficient, meaning
oxymeters, etc. Therefore, a comprehensive
stock prices reflect all available information.
study of the healthcare industry will give us
2. The event is unanticipated- there should not
the right picture.
be any precedent or prior information.
Based on results of past studies, we
3. The event window should be free from
formulated the following hypothesis:
confounding effects which means there are no
H0. The mean abnormal return is 0 during overlapping events that impact the valuation of
the event period. firms during the period of study.
All these assumptions are satisfactorily
Materials and methods fulfilled, as the Indian stock market is efficient
and the pandemic was unanticipated and was
Context the single most important event during the
period of study. The event study has been
The healthcare industry in India is growing
conducted involving the following steps:
with the increase in income and growing
P a g e | 526 A. K. Sar & K. K. Panigrahi

Identification of event and event date available on the exact date of its
implementation in India. The impact of
: Event date is the date on which an important lockdown could not be properly assessed on
announcement is made which creates the date of declaration as there was no clarity
significant impact on the valuation of firms. on its implementation.
The pandemic has travelled through various
phases across the globe and had its impact in Determination of event window
one form or other on the performance of
firms. The intensity and timing of the impact Event window (EW) is the timeframe
have been varied across the countries. We surrounding the event that is likely to have a
have identified the following important events substantial impact on the stock market. A long
during the pandemic which is supposed to event window is detrimental to the power of
have significant impact on the performance of test statistics and results in wrong inferences
stocks of healthcare industry. regarding the significance of an event [12,28-
29]. Short-horizon event studies are a very
COVID-19 chronology of events in India: powerful subject to careful selection of EW
[29]. Researchers have used 10 days and 5
 The 1st case in India 30th January, 2020 days EW preceding and succeeding the event
 The WHO declared it as pandemic on [30, 31]. For this study, we have taken an EW
11th March, 2020. of 21 days; 10 days before and 10 days after
 1st casualty in India on 12th March, the event date of 25th March 2020. The EW
2020. duration has been kept reasonably short to
 1st phase lockdown was declared on avoid confounding event and, at the same
24th March 2020 with effect from 25th time, kept reasonably long to allow the impact
March to 14th April, 2020. to reflect fully on the market as COVID-19 was
 2nd Phase of lockdown- 15th April to evolving continuously.
3rd May, 2020.
 3rd phase of lockdown- 4th May to 17th Selection of sample
May, 2020.
We have collected data of firms covering all
 4th phase of lockdown- 18th May to
segments of the healthcare ecosystem. Firms
31st May, 2020.
have been selected on the basis of market
On assessment of all these events with respect
capitalization, as the impact will be well
to their overall impact, it was found that the
captured for larger firms. The samples have
announcement of the 1st pan- India lockdown,
been selected from three segments of the
which happened on 24th March, 2020 is the
healthcare industry, namely hospitals,
most significant event. Since the
pharmaceutical manufacturers, and diagnostic
announcement was done at 8 p.m. on 24th
laboratories. We have selected fifteen
March, 2020 the effect on stock market
pharmaceutical firms, four hospitals, and
happened on 25th March, 2020. This date has
three diagnostic labs listed in National Stock
been considered as the event date for this
Exchange (NSE) and Bombay Stock Exchange
study. Any event that has a big impact on
(BSE) for the study. Other players like medical
stock market has to have a surprise element
equipment and supplies, medical insurance,
attached to it. Lockdown was very surprising
and telemedicine have not been included as
in the sense that there was no precedence of
exclusive listed firms dealing with these
country-wide lockdown in the last century.
segments were not available for study. For
Though lockdown was happening in other
example, general insurance companies
countries, there was no concrete information
Toxic effects of bintaro (cerbera manghas) … P a g e | 527

provide not only health insurance, but also for the selected healthcare stocks for 163
other types of insurance like motor vehicles, trading days from 1st June 2019 to 29th
livestock, industrial and commercial, crop January, 2020. We have chosen 29th January,
insurance, etc. Therefore, it will be difficult to 2020 as the last date of our estimation
evaluate the impact of the pandemic on firms window as the first COVID-19 case was found
which have multiple product lines, including in India on 30th January, 2020. As China was
healthcare. struggling to deal with the menace of COVID-
19 and the disease was spreading fast to other
Selection of estimation window regions, the detection of the first case was an
ominous signal to the stock market. Hence, the
Estimation window is the period excluding
stock prices might have been impacted by the
the EW, which is taken to calculate the normal
international events. Therefore, the
return or expected return. This is the period
estimation window has been kept clearly
during which the impact of the event is
distinct to obviate any impact of the event on
assumed to be zero. Expected return is the
the stock price or any error in the
benchmark return that could have been
computation of normal return. The estimation
obtained had there been no event.
window ends before 28 trading days from the
Researchers have used a minimum 120 to 255
beginning of the event window.
business days’ data to conduct the event study
[31]. We have collected daily stock return data
Timeline of event window and estimation window

1st June 2019 29th Jan 2020 11th Mar 25th Mar13th April 2020
2020 2020
T-201 T-38 T -10 T-0 T +10

Estimation window Event window

benefit of these models is limited and does not

Estimation of normal return change the result significantly. Economic
model like Capital Asset Pricing Models
Normal return (NR) is the expected return (CAPM) is no longer popular because of its
(ER) during the event window if the event inadequacy in explaining the patterns of
would not have happened. This is required to average stock returns, and Arbitrage Pricing
compute the abnormal return (AR). AR is Theory (APT) does not have any significant
calculated by deducting ER from the actual advantage over the market model.
return. NR is calculated from the stock market Constant mean return model: Being the
data of estimation period using various simplest among all models, it uses the mean
models. These models have been categorized return of a particular stock during the
into two segments: statistical and economic estimation window to calculate ER. Then the
[28]. The first category is based on statistical ER is deducted from the actual returns in the
assumptions and focuses on asset returns. The event window to arrive at the AR. It was found
second category is based on assumptions to be equally efficient as other sophisticated
relating to investors’ behaviour. We have models [11,12].
discussed the four most popular models Market adjusted returns: The market return
below. Other statistical multi-index models for the estimation period is considered as the
(except for the Fama & French model) which ER. The gap between the actual return of the
take into account industry indexes along with stock and the market return is the AR. This is
market indexes, are not discussed, as the
P a g e | 528 A. K. Sar & K. K. Panigrahi

known as a restricted market model as it value and low book value to market value.
assumes αi = 0 and βi = 1 [15]. This could be written as Expected return =
Market Model or Risk Adjusted Returns Model: Risk free rate + Market Risk premium + SMB +
This is considered to be a better model as it HML. The expected return is calculated using
attempts to reduce the variance of AR by the following equation:
eliminating the chunk of return that is caused
by fluctuation in the market’s return. 𝐸(𝑅𝑖 ) = 𝑅𝑓 + 𝛽1 (𝑅𝑚 − 𝑅𝑓 ) + 𝛽2 (𝑆𝑀𝐵) +
This paper used the market model to estimate 𝛽3 (𝐻𝑀𝐿) + Ɛ𝑖 (2)
the normal return, as it is suggested to be the
most appropriate model for a wide variety of Where,
situations [11]. It is recommended as the most E(Ri)= Expected return of stock i
simple and efficient among the three models Rf = Risk free rate
[32]. This model correlates the security return Rm= Market return
with the market return. The stock return is β= Factor’s coefficient (sensitivity)
regressed against the benchmark market Rm – Rf = Risk premium
index throughout the entire estimation period SMB (Small Minus Big)= Past data of excess
to get αi and βi. The αi (intercepts) and βi return of firms in small cap category over
(slope coefficients) are calculated using firms in large cap category.
ordinary least squares (OLS) regression of Rit HML( High Minus Low)= Past data of excess
on Rmt for the estimation period, and then the return of value stocks (high book to market
expected return is calculated using the value) over growth stocks (low book to
following equation: market value)
Ɛ= Random error
𝑅𝑖𝑡 = 𝛼𝑖 + 𝛽𝑖 𝑅𝑚𝑡 + 𝜀𝑖𝑡 (1)
Computation of Abnormal return/ Cumulative
Where, abnormal return: The AR for the firm i and day
Rit= The stock return of firm i on day t
t is calculated using the following
Rmt= the market return on day t
αi= The intercept (it is the part of security mathematical equation.
return that is independent of market 𝐴𝑅𝑖𝑡 = 𝑅𝑖𝑡 − (𝛼𝑖 + 𝛽𝑖 𝑅𝑚𝑡 ) (3)
performance) After calculating the AR of an individual stock
βi= The systematic risk of stock i (sensitivity
for a particular date in the event period, we
of stock return to market return)
need to calculate the aggregate abnormal
Ɛit= The error term (the unexplained portion
of the stock return which is caused by firm returns for the total event period for a sample
specific factors which is not reflected in stock. The aggregate abnormal return across
market return. It is the unsystematic risk the time series is known as cumulative
associated with the stock). abnormal return (CAR). The time series
Fama-French three- factor model: This model aggregation is done using the following
is an improvement on the CAPM model of equation:
Sharpe and Lintner. It takes into account three t2
CAR(t1 t 2) = ∑t=t AR it (4)
factors: (i) Market risk, (ii) market 1
Once the time series aggregation is complete
capitalization, and (iii) book value to market
value ratio to explain the ER. It suggests that the cross-sectional aggregation has to be done
small-cap companies outperform large-cap across all the sample stocks to arrive at the
companies with respect to return. Similarly, average abnormal returns (AAR). AAR is the
firms with a high book-to-market ratio do average return of all the sample stocks for a
better than those with a low ratio. The ER of a given day in the event window. AAR for N
portfolio is determined by responsiveness of number of stocks for t day is calculated using
its return to three factors: (i) The gap between the following equation:
the risk-free rate and market return, (ii) the N
1
gap between return on a portfolio of small and AAR t = × ∑ AR it (5)
large stocks, and (iii) the gap between return N
i=1
on a portfolio of high book value to market
Toxic effects of bintaro (cerbera manghas) … P a g e | 529

Then, the AAR of each day of the event period (single index model) and the Fama & French
is aggregated to get the cumulative average three-factor model (multi-index model) to
abnormal return (CAAR). The CAAR is calculate the normal return. The expected or
calculated using the following mathematical normal return has been calculated using the
equation: data for the period of 1st June, 2019 to 29th
t2
January, 2020 (estimation window). The logic
CAAR t1 t 2 = ∑ AAR t (6) and context for the selection of the estimation
t=t1 window have already been mentioned in
Test the abnormal returns for significance: methodology section. After estimating the
After obtaining all the above parameters, the normal return, the gap between the normal
significance test has been conducted to test return and the actual return in the event
the hypothesis which is whether the abnormal period (11th March, 2020 to 13th April 2020) is
return is statistically different from zero. computed to obtain the abnormal return, and
then the ARs have been aggregated across the
Data collection event window and across sample stocks (time
series aggregation and cross-section
Stock return data has been collected for 22 aggregation) to calculate CAAR. The CAAR of
firms belonging to the health care ecosystem each stock and the portfolio CAAR is
listed on the National Stock Exchange (NSE) mentioned in Tables 2 and 3. Finally, the
for the estimation window ranging from 1st CAAR has been used to test the hypothesis, i.e.
June 2020 to 29th January 2020 and for the if the abnormal return is not equal to zero and
event window from 11th March 2020 to 13th statistically significant.
April 2020. There are a total of 163 trading
days in the estimation window and 21 trading Results and Discussion
days in the EW. The index returns of CNX Nifty
index (50 largest Indian companies listed in The results reveal that out of 15
the NSE), Nifty Pharma (10 large pharmaceutical company stocks, 13 have
pharmaceutical companies), and BSE positive CAAR and two have negative CAAR.
Healthcare (95 stocks belonging to all Out of 13 stocks that have positive CAAR, the
healthcare segments) have been collected for CAAR of 13 stocks is statistically significant.
the same period. The stock return has been The results clearly indicate that the stocks of
calculated on the basis of the closing price of pharmaceutical companies have been
each day in both the estimation and the event positively impacted by the pandemic. The
window. The return is either positive or result confirms the assumption that as the
negative depending upon the closing price of t demand for drugs increased many fold during
day compared with t-1 day. The data has been the pandemic, pharmaceutical companies
collected from the following online sources. were expected to have higher income, which
https://in.investing.com/equities/ was reflected in their stock price. As shown in
https://www.moneycontrol.com/stocks table 3 the pharmaceuticals portfolio CAAR
https://finance.yahoo.com/ was 19.72% (Market model) and 18.75%
https://www.nseindia.com/ (Fama & French three-factor model) which is
https://web.iima.ac.in/ statistically significant. This further confirms
the positive impact of the pandemic on the
pharmaceutical companies’ stock returns. The
Data analysis result of this study is supported by past
research done by [22,23,27]. The results of
We have calculated the CAAR by using the both models show a similar trend.
event study command in STATA statistical Out of 4 hospital stocks, all four have negative
software. As mentioned in methodology CAAR, and the abnormal return for one
section, we have used the market model hospital is statistically significant. The results
P a g e | 530 A. K. Sar & K. K. Panigrahi

confirm that hospital stocks have been random across the event period and also
negatively impacted by the pandemic. It across the firms. Besides that, the ARs have
implies that the operations of hospitals were different variances across firms
disrupted by the outbreak of COVID-19. (hetroscedasticity) and have greater variance
General patients did not go to hospitals during the event period than that of the
fearing the spread of the virus, and doctors surrounding periods. The issues of
hetroscedasticity and cross-sectional
and paramedical staff were also not regularly
dependence in event studies were highlighted
attending hospitals. Therefore, in the 1st phase
by [33,34]. It was confirmed that the
of lockdown, the hospitals were expected to abnormal returns differ across firms, and
incur losses and the same was reflected in contemporaneous correlation among
their stock price. The portfolio abnormal abnormal returns was also found across firms
return (CAAR) of the hospital stocks as shown in the market model [32-36]. Concerns were
in table 3 is negative 13.98% (Market model) expressed over cross-sectional dependency,
and negative 10.89% (Fama & French three- which could result in underestimation of
factor model) and is statistically significant. variances and rejection of the null hypothesis
With respect to healthcare companies [12]. On evaluation of the impact of cross
engaged in diagnostics and laboratories, as correlation and hetroscedasticity in the event
shown by the market model, 2 stocks have a study, it was found that the results are
negative CAAR and 1 stock has a positive substantially biased if these issues are not
rectified [37,38].
CAAR and the CAAR of 1 stock is statistically
Event study models are based on the
significant. But as per the Fama & French assumption that there is no cross-sectional
model, the CAAR of two stocks is positive, and correlation among ARs. This condition is
one stock is negative and the CAAR of no stock violated when the event day is common across
is statistically significant. The difference in the firms and the firms are chosen from a
results between two models is attributed to particular industry. In this paper the event
the SMB and HML factors taken into date is common and the firms are also chosen
consideration for computing the abnormal from a particular industry. Though the market
return by the Fama & French model. As there model reduces the cross-correlations of
is no separate SMB and HML factor data residuals (abnormal returns) to a large extent,
available for diagnostic stocks in India, the total elimination of the impact of cross-
result is different for the model. The other correlation may not be possible [11,12].
Therefore, application of the model might lead
reason could be the availability of small
to underestimation of standard error and in
sample (only three stocks) for the study of the
turn results in over rejection of the null
diagnostic segment. Hence, for this segment, hypothesis that abnormal return equals to
the market model would be the appropriate zero. The portfolio method of Jaffe, in which
one. As per the market model, the results portfolio returns and portfolio abnormal
confirm the assumption that the diagnostic returns are studied, solves the
segment was expected to suffer on account of contemporaneous correlation problem to a
lockdown and this has been reflected in their large extent [33].
stock return. The standard t-test is the ancestor of all
parametric tests, and researchers have
Econometric Issues improved it to remove prediction errors. A
model based on standardised abnormal
Having completed the parametric t test, we returns was designed to overcome the
need to understand the econometric issues shortcomings of standard t-test [38]. It was
with the event study model and adopt further improved to address the problem of
alternative tests to validate the result. Event event-induced volatility [39]. But still, the
study models suffer from autocorrelation for cross-sectional correlation issue remained
both time series data and cross-sectional data. unresolved. In order to resolve the cross-
It means the ARs are not independent and not sectional correlation, Kollari and Pynonnen
[40] modified the BMP test [39].
Toxic effects of bintaro (cerbera manghas) … P a g e | 531

A non-parametric rank test was introduced, in the study is well specified and appropriate
which was further modified by [41] in event for the data set. Table-4 shows the CAAR of
study analysis for assessing abnormal returns two healthcare indices (Nifty Pharma and BSE
[42]. The test had limited application only for Healthcare). Out of the three health care
assessing a single-day abnormal return. indices, the data for Nifty Healthcare is not
Generalized rank tests GRANK-Z and GRANK- available for our study period. The CAAR for
T were designed to evaluate abnormal returns Nifty Pharma is 25.31, and the p value is
of multiple days [43]. Nonparametric tests 0.0000. Since the p-value is less than 0.05, it is
were found to yield better results and are statistically significant. The CAAR for BSE
more powerful than their parametric Healthcare is 17.16, and the p value is 0.0000,
counterparts [43]. It was concluded that the which is also significant. Taking into
GRANK test was immune to serial correlation consideration the results of all the tests, the
and event-induced volatility. It also resolves null hypothesis is rejected. The overall results
the issue of cross-correlation to a large extent. confirm that the healthcare industry has been
Non-parametric test is not based on the impacted by the pandemic. The findings of our
assumption of a normal distribution. It is in a study have been corroborated by the research
way agnostic to distribution properties. result of [22,23,6,27]. The objective of impact
Keeping in view the advantages of the non- assessment at the individual firm level is to
parametric test, we have conducted the non- validate the assumption that firms engaged in
parametric rank test proposed by Kolari and manufacturing drugs that were used in
Pynnonen [43]. The result of the test found to treating respiratory infections and COVID-19
be exactly similar to the standard t-test. The were likely to gain most. This assumption was
diagnostic test confirms that the model chosen found to be correct, as evident from the result.

TABLE 2 Event study with common event date: 25 mar 2020, with 1 event windows specified,
under the Normality assumption

Market Model Fama & French 3 factor Model

( Standard t-test)
SECURITY CAAR[-10,10] P-value CAAR[-10,10] P-value
(A) Pharmaceuticals
Sun Pharmaceutical 23.90%*** 0.0075 17.44%** 0.0297
Divis Laboratories 13.88%** 0.0417 13.99%** 0.0255
Cipla 45.30%*** 0.0000 41.52%*** 0.0000
Dr. Reddy’s Laboratories 25.36%*** 0.0001 25.07%*** 0.0000
Torrent Pharmaceuticals 16.90%** 0.0429 16.76%** 0.0293
Zydus Lifesciences Ltd 45.18%*** 0.0000 41.86%*** 0.0000
Aurobindo Pharma 29.43%** 0.0178 23.64%** 0.0361
Abbott India 19.19%*** 0.0077 21.03%*** 0.0015
Alkem Laboratories 4.26% 0.5623 4.13% 0.5301
Glaxo Smithkline Pharma 13.28%** 0.0302 15.83%*** 0.0046
Ipca Laboratories 6.92% 0.4260 6.61% 0.4077
Glenmark Pharmaceuticals 31.09%** 0.0217 28.48%** 0.0214
Ajanta Pharma -0.72% 0.9332 -0.91% 0.9070
Laurus Lab 7.68% 0.3905 12.63% 0.1141
J B Chemical & Pharma -4.77% 0.5759 -5.28% 0.4978

(B) Hospitals
Apollo Hospitals -16.54%* 0.0782 -12.43% 0.1468
Fortis Healthcare -8.16% 0.3585 -7.31% 0.3699
Narayana Hrudalaya -8.34% 0.4151 -6.26% 0.4987
Aster DM Healthcare -29.11%** 0.0161 -23.73%** 0.0297

(C) Diagnostics
 P a g e | 532 A. K. Sar & K. K. Panigrahi

Dr Lal PathLabs -2.20% 0.8431 6.05% 0.5449

Metropolis Healthcare -18.57%* 0.0708 -15.16% 0.1053
Thyrocare Technologies 6.65% 0.5469 12.11% 0.2268

CAAR group 1 (22 securities) 10.94%*** 0.0000 11.65%*** 0.0000

*** p-value < 0.01, ** p-value <0.05, and * p-value <0.1.

Table-3 Portfolio wise analysis

Market Model Fama & French 3 factor Model
SECURITY CAAR[-10,10] P-value CAAR[-10,10] P-value
(A) Pharmaceuticals
CAAR group 1 (15 securities) 20.02%*** 0.0000 19.09%*** 0.0000
(B) Hospitals
CAAR group 2 (4 securities) -13.72%*** 0.0077 -10.66%** 0.0222
(C) Dignostics
CAAR group 1 (22 securities) -3.72% 0.5516 2.13% 0.7056

*** p-value < .01, ** p-value <0.05, and * p-value <0.1.

TABLE 4 Sectoral Index analysis
Index CAAR[-10,10] P-value

Nifty Pharma 25.31%*** 0.0000

BSE Healthcare 17.16%*** 0.0000

*** p-value < 0.01, ** p-value <0.05, and * p-value <0.1.

example, firms that were engaged in research,

Limitation of the study and Scope of development and manufacturing of vaccines
further research should be making the maximum gains on the
stock market. The scope of research should be
COVID-19 is a worldwide event which spread
widened to include other healthcare players
over approximately one and half year and the
like medical devices and equipment, medical
peak contagion happened in different
insurance, and home healthcare including
countries in different time. Therefore, the
telemedicine, which were also assumed to
choice of event window was difficult as the
have gained during the period. We could not
information leakage and impact of the
include the segment in our study as we did not
confounding event would impact the result of
find enough firms in these segments listed in
the study. Even though the pandemic evolved
stock exchange.
over time, it lost its surprising effect gradually.
A comprehensive study including all Conclusion
important events during COVID-19 would
enable us to determine the most important The pandemic has increased the health
event that has impacted the healthcare awareness of the world population. It has
industry during the pandemic. Individual severely impacted many countries reported to
firm-level impact assessments should be have developed healthcare infrastructure and
further widened to understand the firm- high per capita healthcare spending. It has
specific strengths and weaknesses with revealed the vulnerability of human beings to
respect to the pandemic scenario. For such an epidemic and emphasised expanding
Toxic effects of bintaro (cerbera manghas) … P a g e | 533

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How to cite this article: Ashok Kumar Sar,

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