Bulls see red and markets tank with covid bump, geopolitics3 min read . Updated: 25 Sep 2020, 05:36 AM IST
- Volatility in equities may continue to set the course for a widely expected correction in valuations
- Rupee weakens 32 paise to 73.89 against the US currency as foreign fund outflows weighed on investor sentiment
Indian stocks plunged by the most in four months on Thursday, as the fragile global economic recovery threatened to stall amid a resurgence in coronavirus cases and a new geopolitical flashpoint emerged in East Asia.
Benchmark indexes slumped by 3%, led by financial stocks. The National Stock Exchange’s Nifty breached the psychological 11,000 mark.
The Sensex ended at 36,553.60, shedding 1,114.82 points or 2.96%. The 50-share index Nifty was at 10,805.55, losing 326.30 points or 2.93%.
Foreign investors have sold a net $807.4 million (about ₹5,950 crore) worth of Indian stocks so far this week, contributing to a 0.45% decline in the Indian rupee against the dollar, Bloomberg data showed.
On Thursday, the rupee weakened 32 paise to 73.89 against the US currency as foreign fund outflows weighed on investor sentiment.
The volatility in the Indian markets is likely to continue for some time, setting itself on course for a correction after a rapid rebound from March lows, as soaring stock prices amid a faltering economy made investors nervous, analysts said.
“Though the domestic markets have been under selling pressure mostly due to global peers, there is likely to be some more weakness. Typically, markets fall in the 10-15% range from the peak in similar scenarios," said Pankaj Pandey, head of research at ICICIdirect. “The outcome of the US presidential elections may add to nervousness in India."
However, he added that the current corrections are healthy as stocks valuations had run ahead of fundamentals. Rising cases of the novel coronavirus and the US Federal Reserve’s warning about a fading recovery remained the key cause of worry for investors worldwide.
MSCI’s broadest index of Asia-Pacific shares, excluding Japan, fell by 1.93%. The Kospi in South Korea declined 2.59% as North Korean troops shot dead a South Korean official who went missing this week, and then set his body on fire in what was likely an effort to prevent a coronavirus outbreak.
Hong Kong’s Hang Seng fell 1.7% and Japan’s Nikkei declined 1.11%.
The US Federal Reserve said on Wednesday that the US economy remains in a “deep hole" of joblessness and weak demand, and called for more fiscal stimulus, noting that policymakers “are not even going to begin thinking" about raising interest rates until inflation hits 2%.
Meanwhile, the Indian markets have fallen around 9% from the highest level it touched on 31 August in the period after March-end.
In this period, Indian stocks showed resilience despite rising coronavirus cases, geopolitical tensions, and economic slowdown.
While the disconnect between the state of the economy and the equity markets is not uncommon, the degree to which the stock market bounced back had surprised analysts.
“Our investment committee expects the equity market to see some downward pressure in the coming weeks as profit booking may set in. However, from a medium-term perspective, we still expect positive returns from equities as we believe equity as an asset class should see support from ultra-loose monetary policies by the major central banks. We recommend investors to use this weakness to build exposure to large private sector banks from a 12-18 months’ perspective," Credit Suisse Wealth Management, India, said in a note on 15 September.
The India VIX, or volatility index, surged by 12.32%, signalling that the market correction may last longer.
“The market breadth is extremely weak and extremely oversold," Shrikant Chouhan, executive vice-president, equity technical research at Kotak Securities said.
As investors across the globe dump equities, Chetan Ahya, chief economist and global head of economics, said that investors need to keep a watch on US fiscal policy, election-related uncertainty, risk of a potentially severe wave of covid-19 infections and fatalities that may force policymakers to take more drastic curtailment measures; and idiosyncratic political risks in emerging markets, excluding China.
Meanwhile, the Nasdaq led gains on Wall Street amid choppy trade on Thursday as investors returned to the perceived safety of technology-related stocks with a surprise rise in weekly jobless claims signalling a slowdown in economic growth.
Seven of the 11 major S&P indexes were trading higher, with information technology leading gainers.
Apple Inc, Amazon.com Inc, Netflix Inc , Nvidia Corp. and Facebook Inc., which have outperformed at a time of increased economic uncertainty and are now trading at lofty valuations, rose between 0.3% and 2.3%.
Reuters contributed to the story.