Sensex nosedives after India detects 2 cases of coronavirus

The benchmark sensex plunged into the red on Monday minutes after the government said that two cases of Coronavirus have been detected -- one each in Delhi and Telangana.

The sensex lost over 700 points within half an hour following an official statement saying that “one positive case of COVID-19 has been detected in New Delhi and one in Telangana”.

At 3.08 pm, the sensex traded at 38,171.96, lower by 125.33 points or 0.33 per cent. It had touched an intra-day high of 39,083.17 earlier in the day.

The government said the person from “Delhi has a travel history from Italy, while the one from Telangana has a travel history from Dubai. Both patients are stable and being closely monitored”.

 Fitch Ratings on Monday cut its forecast for India’s economic growth to 4.9 per cent in the current fiscal on weak domestic demand and supply chain disruptions due to the coronavirus outbreak.

The GDP growth is forecast to recover slightly to 5.4 per cent in 2020-21 (April 2020 to March 2021), it said.

“We at Fitch Solutions are revising down our forecast for India’s real GDP growth to 4.9 per cent in FY2019/20, from 5.1 per cent previously, and 5.4 per cent in FY2020/21, from 5.9 per cent previously,” the agency said in its outlook for the country India’s real GDP growth decelerated to 4.7 per cent in the third quarter (October-December) from an upwardly revised 5.1 per cent in the second quarter owing to slower government consumption.

“A failure of the FY2020/21 Union Budget to provide support to the industry will also bring little reprieve for a sluggish industry already coming under heavy pressure from a credit squeeze following the collapse of several key Non-Bank Financial Companies (NBFCs),” it said.

NBFCs are a key channel in which consumers obtain loans for vehicle and housing purchases.

“Our revision is due to our view for disruption in the automotive and electronics supply chain from the ongoing Covid-19 outbreak in China to weigh on India’s export manufacturing sector, and for this to have negative knock-on effects on the broad services sector,” Fitch Solutions added.

It expected a mild pick-up in growth in the next fiscal assuming an easing of the virus spread from June, which should see a broad-based improvement in the economic activity.

“We expect manufacturing activity to come under further pressure from weak domestic demand and also supply chain disruptions due to the Covid-19 outbreak, which started in China. Weak manufacturing activity would also have a knock-on impact on slowing services growth,” it said.

Manufacturing and services are expected to pick up in FY2020/21.

“We also expect economic activity to be supported by an improvement in the agriculture sector through better harvest prospects and fiscal support announced in the FY2020/21 Union Budget.” The growth deceleration in the third quarter was mainly due to a collapse in gross fixed capital growth, which contracted by 4.5 per cent, and slowdown in government consumption growth to 11.8 per cent from 13.2 per cent in the second quarter.

“We expect manufacturing (14 per cent of GDP) growth to remain weak over the near term,” it said noting that the contraction in manufacturing eased slightly to 0.2 per cent in Q3, from 0.4 per cent in Q2.

Also, a continued contraction in total vehicle sales, suggests that the outlook for the automotive industry remains weak, Fitch Solutions said forecasting that the total vehicle demand would remain weak over the coming months, which should also see production remain in contraction.

Auto industry contributes 7.5 per cent to the total GDP and accounts for half of the manufacturing GDP.

On the external front, supply chain disruptions due to the Covid-19 outbreak, which began in China, will also severely curtail manufacturing activity across automotive and electronics due to a shortage of parts. The coronavirus outbreak in China has prompted the Chinese authorities to implement varying degrees of lockdowns on many cities nationwide.

“Extended factory work stoppages after the Lunar New Year holiday in January, domestic restrictions travel, and labour shortages even as the Chinese government attempts to get factories to resume operations have severely disrupted supply lines across the world,” it said.

China supplies between 10-30 per cent of automotive components used in India’s automotive manufacturing, with the proportion supplied being two to three times higher for the electric vehicle segment.

Indo-Asian News Service