Markets recover on hopes of govt, RBI action to offset virus impact

At the close of trading, the Sensex rose 4.04%, while Nifty was up 3.81%

tion declared the new coronavirus a pandemic and President Donald Trump clamped a ban on travel between Europe and the US, exempting the UK. Investors in Indian stocks had lost ₹11,27,160.65 crore on Thursday.

Indian markets also entered bear market territory on Thursday, joining Australia’s S&P ASX 200, Japan’s Topix, The Jakarta Composite, Singapore Straits Times, the UK’S FTSE 100, Germany’s DAX and the Dow Jones Industrials Average,having shed 22% from their January peak. A market is defined as being in a bearish grip when it has shed 20% from its peak.

Friday’s slide began after Wall Street experienced its worst session since 1987, with investors spooked that emergency fiscal and monetary stimulus will not be enough to stave the coronavirus from plunging the economy into a recession. The DJIA plunged 2,352.60 points, or 9.9%, to 21,200.62 points.

“We are seeing broad-based capitulation,” Joel Ng, an analyst at KGI Securities (Singapore) Pte., said before trading in India was halted. “It’s also a chain reaction from market-wide deleveraging, margin calls and programmed trading funds exacerbating negative market sentiment.”

The worst may not be over yet. The India NSE Volatility Index, the stock market’s fear gauge, is trading at levels not seen since May 2009, signalling market turbulence will likely persist. The rupee rose 0.4%on Friday after falling by as much to ₹74.5250 per dollar, a record low. Even that relief may not last long.

“Past lows are not a line in the sand,” and there is a risk of the rupee hitting 78 and then 80 per dollar, said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd in Singapore. Such a big sell-off “will ignite major concerns because of the ability of such moves to exacerbate capital outflows.”

Central banks globally have been providing liquidity to calm wild swings in financial markets. In the latest developments, the Bank of Japan will probably expand its stimulus at a meeting next week, people familiar with the matter have said, while the Reserve Bank of India (RBI) pledged to use its record $481 billion foreign-currency arsenal to stem the market rout. The Bank of Korea is also considering an emergency board meeting and will take steps to stem excessive foreign exchange movements.

“The equity markets have by now priced in at least a technical recession lasting two quarters,” said Eli Lee, head of investment strategy at Bank of Singapore. “The larger question is whether we could see a longer fundamental recession.

RBI said in a statement on Thursday that it was closely monitoring the global situation and “stands ready to take all necessary measures” to ensure the financial markets function normal llay. The rupee has come under pressure as foreigners unloaded $1.2 billion worth of local bonds and $2.7 billion of shares so far this month, data compiled by Bloomberg shows.

The government’s chief economic adviser Krishnamurthy Subramanian said on Friday that the government and RBI were ready to take steps to calm the markets over coronavirus, says chief economic adviser.

(Bloomberg, Reuters and PTI contributed to this story)