Markets Continued To See A Carnage

Stock markets in India traded the week on a negative note as a slew of negative developments, especially the outbreak of the coronavirus in China and concerns over its potential contagion, sparked the risk-off sentiment in investors across the globe. The negative sentiment gained further momentum after India reported its first case of the novel coronavirus in Kerala. The expiry of the January 2020 futures & options contracts added to market volatility. For the month of January 2020, Foreign Portfolio Investors (FPIs) have net sold Indian equities worth Rs 5,359 crore. Domestic Institutional Investor (DII) activity, on the other hand, was biased towards the positive side with DIIs net buying India equities worth Rs 1,073 crore, in the same period. For the period January 24 to 30, 2020, FPIs have net sold Indian equities worth Rs 3,113 crore and DIIs have net bought Indian equities worth Rs 2,953 crore.

Sentiment marginally improved towards the end of the week after the Economic Survey projected GDP growth at 6-6.5 per cent for 2020-21. According to a report by Bank of America, the country's fiscal deficit for FY20 is expected to widen to 3.8 per cent and the Budget may set a target of 3.5 per cent for FY20. The institution cited a correction in consumption demand as the main reason for a dip in economic growth to a decade low of 5 per cent. Domestic shares plunged in a special trading session on February 1, Saturday, as announcements made in the Union Budget 2020 failed to lift investor sentiment. An absence of a clear roadmap for job creation, lack of any big ticket sectoral reforms, confusion regarding income tax slabs and no tweaks in Long-Term Capital Gains (LTCG) tax led to a carnage in share prices. The benchmark Nifty broke both the crucial 100 and 200 days simple moving averages placed at 11,822.19 and 11,655.03, respectively and lost ~2.66 per cent to close at 11,661. The barometer BSE S&P Sensex plunged 987.96 points or 2.43 per cent to close at 39,735.53.

In the United States, the Federal Reserve held rates steady at a target range of 1.50 per cent to 1.75 per cent, in its first meeting of 2020. The Federal Reserve changed little in its outlook for the US economy and said that the economy continues to rise at a moderate. Currently, the US economy is in the midst of its longest expansion on record. However, the Fed has downgraded its assessment of household spending to “moderate” from “strong” in December 2019.

Now that the Union Budget has been tabled, focus is likely to shift back to earnings while the narrative will continue to focus on demand revival and liquidity.