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Wednesday, April 01, 2020

Sensex falls 8%, sharpest in a day since 2008; Dow opens with another crash

In India, the rupee fell 60 paise to a new 17-month low of 74.28 against the US currency due to strong dollar demand and capital outflows. Foreign portfolio investors have sold stocks worth over Rs 13,500 crore in the last two sessions.

By: ENS Economic Bureau | Mumbai | Published: March 13, 2020 4:40:00 am
Outside the Bombay Stock Exchange building in Mumbai on Thursday. Pradip Das

INDIAN stock markets Thursday suffered their biggest ever one-day plunge of 2,919 points as the coronavirus pandemic triggered a brutal sell-off in global markets.

The benchmark Sensex which plummeted 3,200 points at one stage, registered a huge loss of 2,919 points, or 8.18 per cent (worst single-day fall since the financial crisis on October 24, 2008) to close at 32,778.14, a two-and-a half year low. The broader NSE Nifty slumped 868.25 points or 8.30 per cent to close at 9,590.15. On Monday, Sensex had plunged 1,942 points.

With Thursday’s battering, stock markets have lost 20 per cent in 30 days, indicating they have entered a bear phase. A bear market is a condition in which securities prices fall 20 per cent or more from recent highs amid widespread pessimism and negative investor sentiment. Dow Jones of Wall Street has also lost 23 per cent and Nikkei of Japan fell 22 per cent.

In the US, the S&P 500 plummeted over 7 per cent Thursday morning, prompting a 15-minute halt in trading within minutes after the markets opened and triggered a circuit-breaker. The markets were reacting to President Donald Trump’s travel ban on all Europeans except those from UK to the United States for 30 days to slow the spread of coronavirus.

In India, the rupee fell 60 paise to a new 17-month low of 74.28 against the US currency due to strong dollar demand and capital outflows. Foreign portfolio investors have sold stocks worth over Rs 13,500 crore in the last two sessions. Even as the market witnessed a big sell-off, the Reserve Bank of India (RBI) on Thursday said it “stands ready to take all necessary measures to ensure that the effects of the COVID-19 pandemic on the Indian economy are mitigated, and financial markets and institutions in India continue to function normally”. The RBI also decided to undertake a 6-month US dollar sell-buy swaps to provide US $ 2 billion liquidity to the foreign exchange market.

Analysts expect more outflows in the coming days as FPIs are keeping away from stocks in the global meltdown.

Mutual fund net asset values (NAVs) and the value of investors stock portfolio have plunged in the market meltdown in the last two weeks. On Thursday, investor wealth worth Rs 11.27 lakh crore was wiped out, taking the total market capitalisation to Rs 125.86 lakh crore.

After the World Health Organization (WHO) declared the coronavirus outbreak as a pandemic and expressed deep concern over the “alarming levels of inaction”, global markets crashed further, taking indices to new lows. Travel ban imposed by several countries and soft oil prices added fuel to the market’s fire, analysts said.

Vinod Nair, Head of Research, Geojit Financial Services, said, “Recession fears increased after WHO declared coronavirus a pandemic which forced investors to sell off risky assets. Fresh travel bans across nations is contributing to the fears that economic impact will be much larger than earlier estimates. The RBI is expected to cut interest rate and announce additional liquidity before the scheduled meeting which is due next month.”

However, several experts said time may be appropriate to build a stock portfolio as prices have fallen considerably. “The equity indices slumped by almost 8 per cent on yet another day of sell-off triggered by the deadly cocktail of the pandemic and the rising fears of a slowdown in global as well as domestic growth. Needless to say, those who have been into their investment plan in a phased manner would also be surprised but relatively less affected due to deferred commitments over longer time span. A time eminently suited for building portfolios for the longer tenure,” said Joseph Thomas, Head of Research, Emkay Wealth Management.

“The market direction will continue to be dictated by coronavirus update as WHO has declared the virus as a ‘pandemic’ creating panic amongst investors. Further, crude oil price and currency movement will be on investors’ radar. Hence, we expect volatility to remain high in the markets given uncertainty across the globe,” said Ajit Mishra, VP – Research, Religare Broking. The coronavirus outbreak has left virtually no sector untouched, though travel and tourism have been particularly hard hit as countries institute travel bans and quarantine requirements, said an analyst. The Dow Jones Index had plunged around 1,465 points, or 5.9 per cent, on Wednesday, in a brutal session that left the index more than 20 per cent below its peak, making it a bear market. Thursday morning, it lost another 7 per cent in the initial few minutes itself, triggering the circuit-breaker. Hong Kong’s Hang Seng Index fell by as much as 4.4 per cent, flirting with the 20 per cent decline since its April peak for the second time in as many years. Tokyo, host of the 2020 Olympics, fell 4.4 per cent, with the benchmark Nikkei 225 plunging for the fifth trading day. Shanghai’s Composite Index fell 1.5 per cent. The Kospi in Seoul slipped 3.9 per cent and the tech-heavy Kosdaq shed 5.4 per cent. Australia’s S&P/ASX200 closed down 7.4 per cent – its biggest fall since October 10, 2008.

In India, SBI crashed 13.23 per cent in the selling avalanche. Among sectoral indices, oil and gas plunged 9.82 per cent, followed by realty, metal, bankex, finance, energy and IT. Broader BSE midcap and smallcap indices lost up to 8.72 per cent. “While markets may well go down further, investing when terrified is one of the hardest things to do. It is through this terror that one must think rationally and look to buy great businesses which are unleveraged, which are stellar capital allocators with the highest governance standards and which will not just survive but come out stronger over the next 5-10 years and thus potentially provide outsized returns to the intrepid investor,” said Siddharth Mehta, Founder & CIO, Bay Capital.

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