Coronavirus may put Indian economy at risk

Indian Equity market plunged sharply this week witnessing the worst weekly fall since 2009, on fears that the fast spread of coronavirus outside China may trigger recession across major economies.

The IMF warned over the last weekend that the coronavirus epidemic could put an already fragile global economic recovery at risk. Even the finance ministers and central bank chiefs of the G20 major industrial economies in a meeting in Saudi Arabia over last weekend warned that the outbreak is threatening to derail world growth.

All this led to a major global selloff. On Friday, Nifty saw the third-biggest one-day fall in history, slipping 432 points (-3.7%) in a single session. The domestic market tracked the carnage across the global markets.

Even the Nifty’s F&O series posted a loss for the second straight month in February. In the February series, it fell 3.5%, registering its worst F&O series in seven months.

The Nifty VIX soared as much as 63% during the week, stressing a spike in volatility and fear among the market participants. The Brent crude slipped below $50/barrel while Gold hits 7-year high.

Both Nifty 50 and Sensex fell 7.3%/7.0% to close at 11202/38297 for the week. Even the broader market fell in tandem with the benchmark, with both Nifty Midcap 100 and Nifty Smallcap 100 down 7.3% and 7.9% respectively.

All the sectors ended in red, with Metals being the biggest loser, down 14% during the week. Auto, Media and PSU Banks fell more than 10% while IT, Pharma, Realty, Infra and Energy fell in the range of 7-9%. On the other hand, FMCG and Private Banks fell 4-6%.

FIIs were net sellers throughout the week, selling equities worth more than Rs 11,300 crores while DIIs were net buyers to the tune of Rs 16,000 crores.

As coronavirus spread rapidly around the world, hopes that it would be contained has vanished and market fear that it could turn into a pandemic.

Investors are fearful that it might lead to the global recession as the outbreak is spreading to the world’s largest economy - the USA as well as Europe which will adversely impact the global supply chains big-time including India and derail economic growth.

Further continuous FII selling also dented investor sentiments. Markets would continue to remain volatile and weak until the fast spread of coronavirus gets controlled.

Technically, till Nifty holds below 11333 – 11350 zones, weakness could be seen further towards 11100-11000 zones while on the upside hurdle are seen at 11450-11550 zones.

(The writer is Head of Research at Motilal Oswal)