Indian equities to be under pressure as COVID-19 spreads

The key Indian equity markets − S&P BSE Sensex and NSE Nifty50 − might face some pressure in the coming week as investors remain on the edge regarding the economic fallout of the COVID-19, analysts opined.

“The spread of coronavirus, its impact on the global economy and the response of various nations to deal with it will also be closely watched,” said Deepak Jasani, Head of Retail Research, HDFC Securities. “Although global markets are heavily oversold, the bounces are not sustaining and we are witnessing fresh bout of negative news resulting in rallies being sold into. This is frustrating investors across the globe.” However, hopes of a likely stimulus similar to the ones given in US and Europe and the volatility curbing measures announced by the regulator SEBI are expected arrest a major downward spiral.

“SEBIs new norms are expected to be a market confidence boosting factor and is aimed at reducing the extreme volatility seen in futures and options (F&O) stocks,” said Vinod Nair, Head of Research at Geojit Financial Services.

“This will impact the speculators and could lead to some short covering on Monday. For the long term markets will continue to focus on whether virus infection rates peaks out and also on the coordinated actions of RBI and the government to support businesses with relief package.” Market regulator SEBI on Friday announced measures to control the high volatility which has plagued the country’s stock markets.

On Friday, SEBI revealed the measures to contain massive volatility that has plagued the stock markets. These include limits on positions that can be taken up by investors in the F&0 segment.

Furthermore, the regulator set certain conditions under which mutual funds or foreign investors can place bets on the index futures.

Meanwhile, Finance Minister Nirmala Sitharaman has held separate meetings with ministers who hold key economic portfolios. The decisions and recommendations of these meetings will be used as inputs for the economic response taskforce.

The task force is likely to announce measures, such as extension of loan tenors for the micro, small and medium enterprises (MSMEs) and relaxing NPA (non-performing assets) norms, while on the taxation part, GST may be waived on hospitality and tourism sectors.

At present, COVID-19 has had a severe impact on several sectors, including aviation, hospitality and tourism along with the overall economy.

“Easing monetary policy action across the globe shows the impact coronavirus would have on the economy,” Siddhartha Khemka, Head of Retail Research, Motilal Oswal Financial Services.

“These concerns will most likely weigh on the markets which would take a while to recover from this significant price damage.” Technically, while the NSE Nifty has recovered sharply from last week’s lows, the intermediate trend remains bearish.

“We remain open to the Nifty testing lows of 8,502 once again in the coming week. Any pullback rallies could find resistances at 8,883-9,128,” Jasani added. Markets were in a really bad shape last week and just about managed to recover some ground on Friday. They lost on the first four days of the week. BSE sensex lost 4,187.52 points or 12.28 per cent to close at 29,915.96 points while NIFTY was down 1,209.75 points or 12.15 per cent to close at 8,745.45 points. The broader markets saw BSE100, BSE200 and BSE500 lose 12.08 per cent 12.02 per cent and 12.23 per cent respectively. Markets have been falling with one single concern which is the spread of COVID-19. The virus which spreads amongst humans coming in contact at a massive speed has already seen more than 13,000 deaths globally as of date and the number is rising. In India, the Prime Minister has called for a ‘Janata Curfew on Sunday the 22nd of March from 7 a.m. to 9 p.m. with just one intention, to slow the spread of the virus. The virus remains active for 12 hours and needs to be transmitted before that for it to cause any further damage. This ‘curfew’ is for 14 hours and aims at breaking the chain.

At the outset, let me offer my apologies for getting the market bottom wrong last week. We broke that bottom this week and have rallied back to a higher level than the low made on Friday last, but are not yet out of the woods. Global markets have been under extreme pressure and the Dow Jones is no exception. It lost 4,011.64 points or 17.30 per cent to close at 19,173.98 points.

The Indian Rupee was under pressure and lost Rs1.44 or 1.95 per cent to close at Rs75.18. The banking sector was under severe pressure and one saw the likes of IndusInd Bank lose Rs364.05 or 45.28 per cent to close at Rs439.95. ICICI Bank was down 22.74 per cent while HDFC Bank lost Rs 17.65 per cent. Similarly, Bajaj Finance was down 25.08 per cent. On the other hand, shares of Yes Bank gained Rs20.35 or 79.65 per cent to close at Rs45.90.

While India is a vast country and isolating people is a challenging task, the attempt being made today of Janata Curfew will go a long way in helping and educating the people. Many more such days may have to be followed to isolate the same. One other thing to learn from Italy and Spain is that the spread happens from overconfident people who believe that nothing can happen to them. Let the markets be and take care of your health, other things will follow.

Markets are likely to take a breather from the huge meltdown that we have seen over the last fortnight.

Indo-Asian News Service