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Business News/ Markets / Stock Markets/  Virus fears trigger shock waves across global markets, volatility worsens India’s woes
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Virus fears trigger shock waves across global markets, volatility worsens India’s woes

Continuous selling by foreign institutional investors of Indian equities heightened market volatility
  • A robust fiscal plan to revive the Indian economy must be kept ready in case the rapidly spreading virus drives the global economy into a recession
  • Indian shares saw their biggest single-day decline ever on Monday, wiping off investors’ wealth worth ₹7 trillion (Photo: AP)Premium
    Indian shares saw their biggest single-day decline ever on Monday, wiping off investors’ wealth worth 7 trillion (Photo: AP)

    Mumbai: Stocks around the world succumbed to intense selling pressure on Monday as investors’ concern intensified over the rapidly spreading Covid-19 outbreak and a plunge in crude oil prices.

    Indian shares saw their biggest single-day decline in absolute terms ever, wiping off investors’ wealth worth 7 trillion. Both the benchmark indices, the Nifty50 and the Sensex, ended at a multi-month lows. The Sensex plunged 1,941.67 points, or 5.17%, to 35,634.95, while the National Stock Exchange’s Nifty index fell 4.9% to 10,451.45 points.

    A rout in US stocks triggered trading curbs that the New York Stock Exchange put in place after the 1987 Black Monday crash. A 15-minute trading halt took hold after the S&P 500 Index fell 7% to 2,764.21 as of 9.34am in New York, triggering the breaker for the first time since December 2008 at the depths of the financial crisis.

    Markets in Japan, China, Hong Kong and Korea lost 4-5% each on concerns over the economic damage from the Covid-19 outbreak and fears an oil price slump would stoke recession. Germany, Europe’s largest economy, saw its benchmark index, the DAX, shedding more than 7%. The FTSE100 fell nearly 9% while France’s CAC40 eroded by over 7%. Brazil’s Bovespa index plunged 10%.

    Oil prices crashed more than 30% after Opec’s (Organization of the Petroleum Exporting Countries’)failure to strike a deal with its allies regarding production cuts caused Saudi Arabia to slash its prices as it reportedly gets set to ramp up production, leading to fears of an all-out price war. Crude oil fell by the most since 1991 on Monday after Saudi Arabia started a price war with Russia by slashing its selling prices and pledging to unleash its pent-up supply onto a market reeling from falling demand because of the virus outbreak. Reports said Russia’s Rosneft, too, would raise oil production from next month.

    Risks of a recession have increased due to the crash in crude oil prices and a surge in virus cases outside China, according to Vinod Nair, head of research at Geojit Financial Services. “Even though fall in crude oil prices is positive for India in the long-term, short-term concerns weighed with FII outflow in emerging markets. Coronavirus fear is intensifying and fresh travel bans seems to hurt the global economic sentiments more than feared," he said.

    Continuous selling by foreign institutional investors (FIIs) of Indian equities heightened volatility in Indian equities. The National Stock Exchange’s (NSE’s) India VIX index, which tracks investors’ perceptions of volatility for at least a month ahead, has soared 21.1% on Monday closing at a six-year high at 31.05. Typically, the volatility index has an inverse correlation with the markets. The index at elevated levels indicates investors expect a major correction at least over the next month.

    In the last nine sessions, FIIs sold Indian shares worth $2.5 billion. However, year to date, they are still net buyers of Indian shares worth $1.03 billion. Domestic institutional investors (DIIs) are still confident about Indian equities. In 2020, DIIs were net buyers of Indian shares worth 30,414.1 crore while they pumped in 10,092.78 crore in March alone.

    According to Rusmik Oza, head of fundamental research at Kotak Securities, the downside of stock markets looks minimal with very good risk-reward ratio from a long term perspective. “A $5 per barrel decline in oil prices saves India $7-8 billion. Considering bond yields and historic average valuations of our equity markets, we expect the Nifty-50 forward price-to-earnings (P-E) to bottom out at 16 times," he said.

    However, the fall in the prices of crude oil augurs well for the Indian economy, considering the country imports more than 80% of its oil requirements. In the current financial year, India has imported 4.5 million barrels per day (April 2019-January this year) of crude oil and the country’s import dependency based on consumption has increased to 85% as compared with it being 83.5% a year ago in the same period.

    “Price of crude oil is to range between $40-45/barrel till the situation globally of coronavirus is contained. There are chances of price to fall even further than $ 40/barrel, April 2020 onwards if the virus was to spread to more countries which will potentially affect demand prospects," Care Ratings said.

    The Indian currency closed at 74.09 to a dollar—a level last seen on 11 October 2018, down 0.41% from previous close of 73.78.

    The 10-year bond yield fell 12 basis points to 6.065%—a level last seen on 3 Mar 2009 from its previous close of 6.183%.

    Gold prices breached the $1,700 level for the first time since 2012, as investors rushed for safe haven assets.

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    Published: 09 Mar 2020, 11:55 PM IST
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