Indian markets plunge as pandemic fears drive investors into panic selling mode, Brent crude hits a 16-year low; analysts now see a long recession
After scaling new highs in January, India stocks have dipped 31.8%
Mumbai: Indian stocks plunged again on Wednesday, as investors fled risky assets amid fears that coronavirus infections may surge in the country, wreaking economic havoc.
Benchmark stock indexes Sensex and Nifty plummeted as investors dumped blue chip stocks, including shares of top private lenders. While BSE’s Sensex fell 5.59% to 28,869.51 points, the National Stock Exchange’s Nifty index shed 5.56% to 8,468.80 points.
As rising infections of the novel coronavirus pose a medical and economic challenge for policymakers worldwide, global investors raced to stock up on cash, dumping even safe haven assets such as gold and government bonds. In India, foreign investors have sold shares worth about $4.4 billion in March alone.
Investors are bracing for an expected squeeze in spending, particularly in sectors such as travel, hotels, and discretionary items, which threatens to hurt growth in the first and second quarters of 2020. The US markets have refused to take solace from a $700 billion monetary stimulus, zero interest rate regime and hints at further easing, as deaths from Covid-19 infections touched 116 in that country. Analysts note that the markets may be bracing for a long and deep recession.
Wednesday’s selling in Indian markets hurt bank stocks the most. Over the past few days, the Bank Nifty index has lost far more than the benchmark Nifty, alarming investors who had judged them as safer bets in volatile times. In fact, the Bank Nifty barrelled down 10.9% in the last two days, underperforming the Nifty’s 7.9% loss.
Stocks of state-run companies were one segment that escaped the carnage, as investors looked for stocks that were already battered severely. Stocks of Oil India Ltd, Oil and Natural Gas Corp. Ltd were among those that clocked gains in a market awash with red.
Investors were also spooked after the Supreme Court Wednesday said there will be no reconsideration of adjusted gross revenue (AGR) dues, sending shock waves among telecom companies. Shares of Vodafone Idea Ltd were hammered 35% as investors worried about its survival, while Bharti Airtel Ltd lost 6.41%.
As recently as January, Indian markets were scaling new highs, but since then, stocks have dipped 31.8%, in a swift race to bear market territory. Global investors fear India could throw up more cases of the pandemic, even though the country’s numbers are far below global averages.
“While it may be conspicuous that the markets globally are crumbling amid fears of a global pandemic, we reckon the clamour around coronavirus is to a large extent justified but at the same time, it is a lot driven by fear and overreaction. People are wired to react to situations of fear and greed," said Jyoti Vaswani, chief investment officer, Future Generali India Life Insurance.
Economists are already pencilling in a US recession in 2020, and are also not ruling a recession in other parts of the world. Asia-Pacific is poised to take a deep first-quarter shock in China amid the shutdown of activities across G7 economies, said S&P Global Ratings. A loss of household and business confidence in these economies will translate into severe and more persistent supply and demand shocks across the region while unemployment rates will rise, pointed out S&P Global ratings.
“The global policy response, including the Federal Reserve’s policy-rate cut to zero and the Bank of Japan’s scaled-up asset purchases, will help cushion but not quickly reverse, these shocks. Local measures aiming to support vulnerable sectors and workers, such as a payroll tax cut in China, may help but their effect will wane the longer the crisis lasts," said S&P Global Ratings.