Sensex plunges 10% in early trading over pandemic fears, surges 18% after govt moves to assure chary investors
Trading was halted for 45 minutes following the day’s low, as fears of the global viral outbreak continued to weigh on investor sentiment
Mumbai: In a massive intraday swing, markets rebounded strongly on Friday, boosted by assurances from the government, after a 10% fall over fears of the Covid-19 pandemic triggered a temporary trading halt.
Markets recovered 18% after trading was halted for 45 minutes following the day’s low in early trade, as fears of the global viral outbreak continued to weigh on investor sentiment.
After the pause, the Sensex gained as much as 5,380.51 points, or 18.31%, before closing at 34,103.48, up 1,325.34, or 4.04%, from Thursday’s close.
The 50-share index Nifty recovered 1,604.25 points, or 18.75%, during the day before closing at 9,955.20, up 365.05 points, or 3.81%. Global markets were mixed with equities in Japan, China, Hong Kong and Korea down 1-6%, while Europe was up.
In a bid to calm sentiments, chief economic adviser Krishnamurthy Subramanian said the fundamentals of the economy remain strong.
“What we are seeing over the last few days is primarily a reflection of global factors. Stock markets at times react with both greed and fear. Currently, there is some fear due to corona virus. It seems to be driven by global factors, (given the macro measures and fundamentals), which I expect to come down in few weeks," Subramanian told reporters.
“If we look at the number of countries that saw a huge decline in their stock markets since 31 January-12 March. Russia, Brazil, France Germany, Argentina, US, UK and Japan have seen more than 20% decline in their stock markets. India is actually below them."
The US Federal Reserve surprised by pumping in more than $1 trillion cash into the banking system, aiming to head off the sort of dislocation that saw markets seize up during the financial crisis more than a decade ago.
“Hopes of a US stimulus package to deal with the coronavirus pandemic boosted stocks across the globe. Assurances by the regulators, Sebi (Securities and Exchange Bureau of India) and RBI (Reserve Bank of India), also allayed some fears," said an analyst.
Central bankers are reacting to these worries by aggressively cutting interest rates—although there are concerns that the cuts may not have the desired impact in the short term, as demand for products and discretionary spending will remain weak until the fear around the contagion subsides.
According to Chandraprakash Padiyar, senior fund manager, Tata Asset Management, concerns about the spread of Covid-19, especially in the European Union, and the impact on travel and tourism businesses, have prompted foreign institutional investors (FIIs) to sell Indian equities.
“Valuations across the board have become very attractive in our opinion. Indian macro data looks strong with balance of payment surplus and sharp correction in crude prices. For investors like us, it’s a great opportunity to use the cash we hold to deploy in the markets. We are closer to the bottom of the current correction phase and should expect better outlook over the next 12-18 months," said Padiyar.
In a show of aggressive buying, domestic institutional investors (DIIs) have bought shares worth ₹27,689.18 crore in March, while pumping in ₹5,868 crore on Friday alone. According to industry experts, Life Insurance Corporation of India (LIC), the largest DII in the country, has invested ₹3,000 crore in the last five trading sessions. However, FIIs are still net sellers, having sold Indian shares worth $2.91 billion so far this month.
“The further escalation in Covid-19 cases has disrupted the global economy and has quickly morphed into a dislocation in financial markets, too. As it is, our base case projections indicated that growth will be weak at 2.3%Y in 1H20. Recent developments suggest that a rising risk of our bear case scenario of 2.1%Y growth for 2020 materialising (in other words, a full-blown global recession)," said Morgan Stanley.