How corona hit Indian and global financial market: when did it begin
March 12, 2020, is called the ‘Black Thursday’ because on this day financial markets across the world reported the greatest fall. The fall as measured in a single-day percentage was the highest since the stock market crash in 1987. The Indian market also reacted sharply to the crash, and the Nifty fell by around 8%.
The next day, however, Nifty bounced back by around 5%. The US markets also reported gains of over 10%. Over the week, the US Federal Reserve initiated emergency rate cuts. When markets opened on Monday, brisk trading was expected. But, the US market crashed more than the previous Black Thursday, registering a fall of around 12.7%. This fall – despite corrective measures – was unprecedented in global financial markets.
In India, Sensex fell by around 32% from January to March 19 – the fastest crash ever registered. Even during the times of previous market uncertainty, like the dotcom bust, Harshad Mehta scam and the financial crisis of 2008, the fall in the Indian financial market was spread over several months.
Reasons for the sudden crash in markets
Initially, markets remained unaffected by the Coronavirus, despite the World Health Organisation (WHO) declaring it as an international emergency. Global market indices, including Sensex and Nifty were robust. Because of the inordinate delay in considering the magnitude and effect of the pandemic, stock markets entered the phase of panic selling. This downward spiral resulted in a sudden market crash.
Markets also failed to factor the standstill in the Chinese economy. China, the global manufacturing hub and the largest consumer of different products and services were battling Coronavirus. Both global production and consumption were negatively impacted by the crisis in China.
How emerging markets like India took the biggest blow
In the global markets Emerging Markets (EMs) like India bore the brunt of the crisis. Typically, during the times of any global financial crisis, Foreign Portfolio Investors (FPIs) exit EMs towards safer investment destinations. The Foreign Institutional Investors sold off their investments in Indian equity markets, showing a total net outflow of more than Rs 25,900 crore from January to March 18. With the flight of investors and emergency rate cuts by the US Federal Reserve, Indian treasury bond yields also decreased from 6.6% to 6.4% in March. Gold prices failed to pick up, and Indian Rupee (INR) fell to an all-time low of 75.03 against the US Dollar ($).
What made the market move in the April-June quarter?
- Markets surge 20% in April-June- the biggest quarterly rally since September 2009.
- Rally was largely driven by the optimism of economic recovery after the reopening of cities.
Indian stock markets in the April-June period rose nearly 20%, clocking their best quarterly gains since the September quarter of 2009 despite COVID-19 severely hampering economic activity.
The rally was largely driven by the optimism of economic recovery post reopening of the country and a gush of liquidity flowing into the Indian markets, especially foreign capital.
The gain by the benchmark indices Sensex and Nifty in April-June came against a decline of 28% and 29% in the previous quarter, according to a Mint analysis.
Both BSE Midcap and BSE Smallcap indices were up 24.29% and 29.68% respectively in the June quarter. Sectorally, the biggest gainers were BSE Auto (42.29%) and BSE Telecom (36.08%).
Robinhood traders driving the Nifty rally
From the beginning of April, where the broader market moved higher, dozens of companies with negative equity value, aka penny stocks, moved higher hitting daily circuit filters. Some of them like GTL Infrastructure, JP Associates, Unitech, Reliance Power, Jain Irrigation, Sintex Industries moved higher by 300-500 percent. No wonder market veterans were surprised by the rally in the frontline stocks, but the underlying reason driving the stocks higher can be judged from this strange movement in penny stocks.
What’s more surprising is that this trend of Penny stock buying was also visible in the US and other markets as well. Retail investors (Indian version of Robinhood traders), who was at home during this lockdown, tried to tap the prices higher. It is quite likely that they may also have invested in frontline stocks. However, conspicuously their high interest in penny stocks has been quite visible and frightening. A handful of these penny stocks showed reverse trend and hit lower circuits. It’s time to be cautious!
5 stocks that helped nifty get back its mojo
From its lows of March 24, five blue-chip stocks contributed 56% to the Nifty rally. The top 10 stocks comprising Reliance Industries, the HDFC twins, Infosys, Bharti Airtel, ICICI Bank, TCS, HUL, Axis Bank and Nestle contributed 72% to the 1,450-points or 30% gain in the benchmark index.
Reliance Industries ltd
Deals of Jio Platforms with Vista and Facebook, and the rights issue have led to the stock surge from its March 23 low of Rs 875.7. Deleveraging efforts and expectations of similar deals are likely drivers, said analysts. “Jio is the main contributor,”
INVESTORS view HDFC Bank as a safe bet amid the COVID-19-related disruption in the banking sector. “While there was a high level of uncertainty, which forced investors to sell the bank’s stock on every rally, analysts believe HDFC Bank will come out strongly post the lockdown,”
Investors were looking at stocks that are expected to have a lesser impact from lockdown… For BFSI, growth and credit cost/asset quality is a big challenge. “Those concerns are perceptibly lesser with (HDFC twins) because of the quality of clients, strong business model, the stability of borrower profile and healthy capitalization.”
Analysts said headline numbers disappointed in the March quarter but internals were better. “Even as we expect near-term challenges, Infosys is well-positioned to weather the storm, gain share in a recessionary environment and outperform on profitability management,”
In an environment where businesses are shut, telcos like Bharti have seen growth, particularly in data, said, analysts. “Tariff hikes of December have remained intact. Investors expect the impact of that to be reflected in upcoming quarters,”
July 2020 rally: Positive Q1 results and positive reports of successful monsoon across the country being the driving force
Indian benchmark indices touched a near five-month high and closed up by around 1.4%, with auto and IT constituents contributing the most to the gains. Some stocks rallied on the basis of their positive results, with operating margins and earnings visibility being the key notables on 28th July 2020 tracking strong trends in other Asian markets that were trading higher on hopes of a further US stimulus that could cushion the economic impact of the coronavirus outbreak
The Indian stock market witnessed an improvement as policymakers around the world were active on options including stimulus to mitigate the adverse effects of Corona on the economy.
The foreign markets underperformed the benchmarks but Indian stock markets rallied on the back of positive results and positive reports of successful monsoon across the country also liquidity has been a key driver for the market and the Fed decision was greeted positively.