Coronavirus updates to dictate market trend this week: Analysts

THE gloom in the Indian Equity markets might BE short-lived As various fiscal measures ARE EXPECTED

NEW DELHI: After posting their worst week since the 2008 financial crisis, Indian equity benchmarks will take further cues from global markets in the coming sessions as investors assess the impact of the coronavirus outbreak, analysts said.

The BSE Sensex logged its second-biggest one-day fall in history on Friday, mirroring a carnage in world equities amid fears that the virus epidemic may turn out to be a bigger threat to the global economy than initially anticipated.

More than 85,000 people have been infected in over 50 countries and over 2,900 have died.

According to Vinod Nair, Head of Research at Geojit Financial Services, the risk to markets will increase if the infection lasts longer and continues to spread at a fast pace.

"The numbers, regarding the spread of the disease, and how far it can be contained, will drive the markets next week. Measures by governments to boost respective economies will also be watched out for, post the Chinese government's support to bolster the economy," he said.

Stocks are also expected to react to the GDP growth numbers released after market hours on Friday.

India's gross domestic product (GDP) growth slipped to a nearly 7-year low of 4.7 per cent in October-december 2019, weighed by a contraction in manufacturing sector output.

"Markets may have fallen on the coronavirus scare, but it may be worthwhile to ponder on the direct relationship between GDP growth and earnings growth to understand whether the markets have run ahead of the earnings trajectory, at least for some time now," said Joseph Thomas, Head of Research - Emkay Wealth Management.

In the forthcoming week, investors will also track SBI Cards IPO and RITES OFS by the government, said Jimeet Modi, Founder and CEO, SAMCO Securities & Stocknote.

"However, no matter the outcome, markets would broadly be driven by the virus and global sentiment," he added.

Fundamentally, Indian bourses have been trading at higher valuations and hence a correction was needed to align the markets as per the mean reversion theory, he pointed out.

"Hence, this week's fall is a valuation play with coronavirus as the scapegoat. The frothy valuations needed the markets to correct," he said.

The BSE Sensex crashed 1,448.37 points, or 3.64 per cent, to close at 38,297.29 on Friday.

During the week, the Sensex plunged 2,872.83 points or 6.97 per cent, and the NSE Nifty tumbled 879.10 or 7.27 per cent.

The gloom in the Indian equity markets might be shortlived as a number of global and domestic stimulus inducing factors are expected to give a boost to investors' sentiments.

Supporting such a move is a technical fact that FIIS have net shorted 156,261 futures contracts on the Nifty.

A similar movement was seen in September 2019 when a slump was followed by a spurt, however, with a lag of some 20-30 days.

If the overall pattern repeats itself, then an up move is imminent.

“We witnessed short rollovers from the February series and further shorting was seen on the first trading session of the March series. FIIS aggressively shorted index futures in the last couple of weeks and as a result, their ‘Long Short Ratio' in index futures reached to below 13 per cent, which is lowest since April 2018,” said Jay Purohit, technical and derivatives analyst at Motilal Oswal Financial Services.

“Technically, strong support for Nifty is placed in the zone of 11,000-11,100 points. The overall data clearly indicates that the market is hovering in oversold territory and a bounce towards 11,450-11,500 levels cannot be ruled out in coming weeks. However, sustenance at higher level would be a challenge for the Bulls,” Purohit added.