Home >Markets >Mark To Market >D-Street panics as markets just can’t price the coronavirus outbreak
Brokers work at their computer terminal at a stock brokerage firm, in Mumbai on Thursday. (ANI Photo)
Brokers work at their computer terminal at a stock brokerage firm, in Mumbai on Thursday. (ANI Photo)

D-Street panics as markets just can’t price the coronavirus outbreak

  • Nifty 500 index has fallen nearly 38% from its highs on 24 Jan, with lockdowns causing panic
  • Markets are now beginning to price in recession scenarios as policy measures seen as inadequate

As panic grips Dalal Street, it appears investors may have to brace for a rough road for some time to come.

The National Stock Exchange’s Nifty 500 index fell by more than 12% on Monday, taking the drop from its highs on 24 January to as much as 38%. This makes it one of the fastest dives into bear market territory in the history of Indian stocks.

The markets have erased 40-months’ gains in just a month. By contrast, in 2008, it took over five months for the markets to drop about 36%.

The primary fear in the markets on Monday was that the lockdowns announced by many state governments will crimp businesses and also hit individual incomes in the next few months.

Blood on the Street
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Blood on the Street

As panic grips Dalal Street, it appears investors may have to brace for a rough road for some time to come.

The National Stock Exchange’s Nifty 500 index fell by more than 12% on Monday, taking the drop from its highs on 24 January to as much as 38%. This makes it one of the fastest dives into bear market territory in the history of Indian stocks.

The markets have erased 40-months’ gains in just a month. By contrast, in 2008, it took over five months for the markets to drop about 36%.

The primary fear in the markets on Monday was that the lockdowns announced by many state governments will crimp businesses and also hit individual incomes in the next few months.

“The current risk aversion is unprecedented, and the panic will leave Lehman-led anxieties behind. While an obvious solution to the Lehman crisis was the bailout itself, current circumstances warrant an economic pick-up as only monetary easing may not emerge as a likely solution," said analysts at Equirus Securities Pvt. Ltd in a note to clients.

Markets are now beginning to price in recession scenarios as aggressive monetary and fiscal stimuli are being seen as inadequate. In the US, jobless claims that till recently were close to their lows, have spiked sharply.

In India, several businesses are expected to be affected due to the shutdown by Indian Railways.

Several strong private sector banks are also getting pummelled as investors are beginning to worry about stress increasing among their retail customers. The carnage has driven about half the Nifty 500 stocks to their 52-week lows, while 80% of these counters have lost more than 30% in this coronavirus-induced carnage.

“There are very few pockets for us to hide," said a fund manager on condition of anonymity, “These are challenging times for everyone."

“We yet don’t know how this will all pan out in the short run. It seems the market is pricing in a depression-like scenario and it’s going a bit too far, as the market just can’t price the outbreak. This is certainly not the end, but only way out is to see the coronavirus being brought under control," he pointed out.

Some experts are saying that the current market situation is unprecedented, as it is more of a medical crisis, which is leading to a financial crisis. Unless there is a medical solution in sight, it is unlikely that investors’ nerves will get calmed.

It’s little wonder that globally investors are seeking the safety of cash as they rush out from most risky assets like equities.

While capital market regulator Securities and Exchange Board of India has imposed some curbs on short-selling, this appears to have worsened the situation, as the Indian market was the worst-hit in the Asia- Pacific region on Monday.

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