Coronavirus Fear Weighs Heavy On Market Sentiments

Stocks markets in India traded the week on a volatile note as the economic impact of the coronavirus (COVID-19) became more pronounced. Benchmark indices remained volatile and recorded a negative closing in three out of four trading sessions for the week ended February 20. On a weekly basis, the Nifty50 closed with losses of 0.27 per cent while the S&P BSE Sensex fell 0.21 per cent for the week ended February 20. However, small and mid-caps bucked the negative trend to register sharp gains. The S&P BSE Small-cap index was up 0.44 per cent while the S&P BSE Mid-cap index gained 0.20 per cent during the week. As many as 40 stocks in the S&P BSE Small-cap index rose by 10 per cent to 30 per cent.

Rising coronavirus (COVID-19) fears capped upside for markets across the globe. Additionally, sentiment took a bit of a hit after Moody's cut 2021 GDP growth forecast to 5.8 per cent from the 6.7 per cent forecasted. Nonetheless, the broader market continued its winning streak despite volatility indicating that investors are seeing market dips as an opportunity to buy good quality stocks at compelling valuations. 

Domestic Macro

Moody's Investors Service has revised its 2020 growth projection for India to 5.4% from the earlier forecast of 6.6 per cent. According, the agency, recovery is likely to be shallow considering that global growth will likely take a hit following the virus outbreak in China. However, improvements in the latest high frequency indicators such as PMI data suggest that the economy may have stabilized.

The RBIs first-ever LTRO saw massive demand with banks bidding for 7.8 times the funds on offer. The central bank had announced that funds totalling INR 1 trillion will be auctioned via long-term repos at a fixed rate of 5.15 per cent which is the current repo rate. Rupee bond sales by Indian banks started on a positive note registering its best start in five years. Record-low borrowing attracted lenders as they arranged for funds to bolster loans and create capital buffers. 

Global Sentiment

Shares in Europe and Asia dropped at the beginning of the week as a revenue warning from iPhone maker Apple Inc. sent shockwaves through the tech sector, highlighting the impact of the coronavirus outbreak on global demand and supply. Globally, expectations of further stimulus measures from China to fuel growth in Asia’s largest economy boosted risk-on sentiment. 

Even as high-frequency indicators in India are showing signs of stabilising, overall the sentiment remains cautious in terms of demand revival and growth expectations.