According to Bloomberg, the coronavirus outbreak sparked fears of a global pandemic even as Afghanistan, Bahrain and Kuwait reported their first cases while infections spiked again in South Korea and Iran.
Domestic equity markets plunged to a three-week low on Monday led by a global sell-off after investors became increasingly concerned about the spread of Covid-19 outside of China. Asian markets pared all the gains made during the post-Lunar New Year rally even as Thailand and Korea saw the worst sell-off in Asia. The SE Thai index closed 3.98% down while Kospi ended the session lower by 3.87%. European stocks also started on a weak note with the FTSE 100, CAC 40 as well as DAX trading more than 3% down as on Monday evening. According to Bloomberg, the coronavirus outbreak sparked fears of a global pandemic even as Afghanistan, Bahrain and Kuwait reported their first cases while infections spiked again in South Korea and Iran. Italy, which is the virus’s epicentre on the European continent, is studying measures to support the local economy, Bloomberg reported.
The sentiment was weak in the commodity markets too with Brent Crude hovering near a one-week low of $56.08/barrel. Crude oil prices fell 5% from the levels of $59.31/bbl on February 20. International gold prices surged to a seven-year high of $1686.83 t/oz as investors fled to safe havens. The Sensex closed 1.96% down at 40,363.23 while the broader Nifty closed the session down 2.08% at 11,829.40. The plunge on Monday eroded over Rs three lakh crore of investor wealth.
Despite the negative sentiment prevailing over the virus outbreak since January, foreign portfolio investors (FPIs) have been buyers of Indian stocks. Bloomberg data shows that FPIs have infused close to $3.5 billion into Indian equities since the beginning of the year — marking India as the only Asian country apart from China that has seen a net inflow this year. FPIs have sold shares worth $160 million on a net basis, according to provisional data on exchange. In January this year, FPIs had bought $1.37 billion on a net basis while they have bought over $2 billion in February so far.
Meanwhile, the rupee breached the 72-mark against the dollar in intraday trade even as the coronavirus outbreak led to a sell-off in most emerging market currencies. The dollar index, which tracks the strength of the US dollar against a basket of US trade partners’ currencies, continued to remain above the 99 level, having risen from the lows of 97.39 seen in end-January 2020.
In contrast, Indian bond markets rallied on Monday with the benchmark 10-year yield closing the session down 5 basis points at 6.367%. The rally came against the backdrop of a fall in the US Treasury yields with the 10-year US treasury yield falling below the 1.40% level.
Furthermore, the second tranche of the Reserve Bank of India’s long term repo operations (LTRO) for one-year tenor was conducted on Monday where the central bank received bids worth Rs1.23 lakh crore against a total notified amount of Rs 25,000 crore.
Market participants indicated that the bearishness in equity markets may continue in the near term even as valuations remain pricey at a time when there is no visible solution to the looming issue of the virus outbreak.
Deepak Jasani, head-retail research at HDFC Securities, said the realisation of the impact of coronavirus spread on the global growth trajectory is spooking the markets. “These fears have sent risk assets in a tailspin and a wave of refuge-seeking into safe-haven (assets). Global market valuations are very high and have not corrected much based on the expectation that in an easy-money environment, global growth will continue. Because globally we are at high valuations, the fall could be sharp and at some point, central banks could take action and open the liquidity taps even more to restore growth. One cannot estimate that for how long would coronavirus puncture the trajectory of global growth,” he said.
This is the biggest single-day plunge witnessed by both the indices since the Union Budget announcement on February 1. On Monday, all 19 sectoral indices on the BSE closed in the red with BSE Metal index falling the most by 5.71%. The Bank Nifty closed 1.6% down at 30,455.10.