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Sensex gains on hopes of lull in China virus outbreak

  • Asian markets also rise after China records fewest new coronavirus cases since January
  • Markets in Japan, China, Hong Kong and Korea were up 1%, which uplifted sentiment in India

MUMBAI : Indian equities edged higher on Wednesday with benchmark indices rising nearly 1%, amid hopes that the worst of the coronavirus epidemic may have passed. Buying in global markets also supported sentiment in India. The BSE Sensex ended at 41,565.90, up 349.76 points or 0.85% while the Nifty closed at 12,201.20, up 93.30 points or 0.77%.

Markets in Japan, China, Hong Kong and Korea were also up 1% after China recorded the fewest new coronavirus cases since January. China’s National Health Commission reported 2,015 new cases of coronavirus and 97 deaths across the mainland on Wednesday, marking the lowest number of new cases in one day since late January, according to Reuters.

The outbreak, which originated in the central Chinese city of Wuhan, has led to the closure of factories, businesses and transportation in the country. It roiled global stocks and commodities, many of which are yet to recover.

Analysts at Morgan Stanley see global growth starting to recover from the second quarter of 2020, rising to 3.5% by first quarter of 2021, excluding base effect from the first quarter of 2020 weakness because of the coronavirus impact.

Graphic: Paras Jain/Mint
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Graphic: Paras Jain/Mint

“However, in the near term, there are still uncertainties as to how quickly the coronavirus situation will be brought under control and when production and goods transportation services will be ramped up to normal levels," the analysts said in a note on 9 February.

Morgan Stanley also thinks that global policy support is unlikely to be withdrawn quickly; indeed, the US Federal Reserve, European Central Bank (ECB) and Bank of England (BoE) have maintained their dovish stance while a number of emerging markets central banks have moved to cut interest rates further.

“We expect the global monetary policy stance to remain accommodative, particularly as the coronavirus outbreak puts some near-term downward pressures on growth," Morgan Stanley said.

Vinod Nair, head of research at Geojit Financial Services said the appetite for risk among investors has improved as new coronavirus cases receded for the second day in a row.

He said the domestic market will watch out for January inflation and any spike might impact rate-sensitive stocks. India’s factory output contracted in December, while retail inflation accelerated for the sixth consecutive month in January, casting a shadow over economic recovery.

In the February monetary policy review, the Reserve Bank of India widened the scope for liquidity transmission in the system.

Analysts said the government’s statement on the green shoots in the economy also uplifted market sentiment. Finance minister Nirmala Sitharaman on Tuesday had claimed that the economy is on the mend, relying on seven indicators to show that green shoots have started to emerge in the economy. India’s economic growth is estimated by the National Statistical Office to hit an 11-year low of 5% in 2019-20.

The International Monetary Fund has projected growth to recover to 5.8% in 2020-21.

Meanwhile, retail investors continued to show confidence in Indian equities as Association of Mutual Funds in India (Amfi) show retail monthly systematic investment plan (SIP) contribution was at an all-time high at 8,532 crore in January. Net inflows into equity mutual funds (MFs) were at a five-month high at 7,934 crore in January, up 73% from December and 28.84% more than the same period last year.

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