Markets on crash course
INDICES’ FALL WIPES OUT ~7.6 TRN M-CAP; INDIA VIX INDEX SOARED 14% TO 58.9 GLOBAL SELL-OFF RESUMES EVEN AS FED CUTS RATES TO ZERO RUPEE AT 15-MONTH LOW OF 74.27 AGAINST THE US DOLLAR
The benchmark indices tanked on Monday, re-entering “bear market” territory, amid concerns that the coronavirus outbreak was increasingly making the prospect of a global recession unavoidable. The Nifty 50 index plunged 646 points, or 7 per cent, to close at 9,309. The Sensex dropped 2,713 points, or 8 per cent, to end at 31,390 — the lowest close since October 2017. The fall wiped out ~7.6 trillion of market cap. From the peak, India’s market cap has declined by ~37.7 trillion. The rupee fell 0.5 per cent to end at a 15month low of 74.27 against the US dollar.
All the sectoral indices of the BSE and all Sensex components ended with losses on Monday. The India VIX index, a gauge for market volatility, soared 14 per cent to 58.9, highest levels since
August 2009. Metal and finance stocks led the latest fall, with their sectoral indices dropping 9.3 per cent and 8.3 per cent, respectively.
YES Bank was the only Nifty stock to end with gains. The stock rose a 45 per cent after the government announced a three-year lock-in on its shares. Most Asian peers fell around 3 per cent, while European markets slid over 8 per cent during India market hours. The futures on the S&P 500 Index had hit ‘down limit’ even as the US Federal Reserve cut rates to zero.
On Sunday, the US central bank slashed interest rates by 100 points to near zero and said it would boost its bond holdings by $700 billion. Other central banks including the Reserve Bank of India (RBI) promised “whatever it takes” approach to fend off the economic crisis, caused by lockdowns and strict social distancing measures.
“There is a fear of how bad it is becoming and will it lead to a recession as everyone is in a lockdown mode. The hit is going to be quite big,” said Andrew Holland, CEO, Avendus Capital Alternate Strategies.
Experts said investors are perceiving the central bank’s actions as desperate attempts to provide some cushion to the market, which is undergoing one of the worst meltdowns in history. “Investors have interpreted the actions by various central banks as a sign that the COVID-19 impact on the global economy could be far worse than initially thought, and central banks are not left with too many bullets,” said Abhiram Eleswarapu, head of India equity research, BNP Paribas.
Holland said: “Probably, we need a stronger response from the government in terms of fiscal measures to calm the markets, we are going to go through this volatile mood as the number of fresh cases peak.”
Currently, the benchmark indices are down 25 per cent from their record highs logged in mid-january. On Friday, the domestic markets had rebounded 16 per cent from intra-day lows. However, the relief proved to be short-lived.
FPIS on Monday sold shares worth ~3,809 crore, extending their one-month selloff to ~50,000 crore. Domestic institutional investors continued to provide buying support. They net-bought shares worth ~2,614 crore on Monday. Markets experts say investors should brace for more volatility and corrections due to the economic uncertainty caused by the pandemic. “Markets could likely remain volatile until the incidence of new cases globally has peaked. This process could take a few weeks or even months, using the examples of countries like China and Korea, which seem to have been successful in controlling new cases,” said Eleswarapu.