By Padma Raga Anand
Sensex otherwise known as Sensitive Index is a free-float stock market index of 30 well-rooted and financially intact companies. The companies that are part of the list are a few of the biggest companies and represent various industrial sectors of the economy.
Given the situation regarding the coronavirus and India is virtually under lockdown, manufacturing companies are falling like a deck of cards. Benchmark indices logged their worst day in history. Analysts say India reached a pivotal phase where it can either go to China or Italy’s way. Due to the outburst in coronavirus toll in Europe and the US has shaken markets across Wall street to Dalal street.
Here are some of the key factors:
India under lockdown.
Leading automakers such as Maruti Suzuki India and Mahindra & Mahindra have announced a suspension of manufacturing activities across plants. Hero MotoCorp has suspended production across all its manufacturing plants. LG said it will shut down two of its mills in India. There are fears that more such shutdowns would bring economic activity to a halt.
Technical charts show a grim outlook
Technical charts were already showing a grim picture and weakness in global indices only intensified the bargain.
With the WHO declaration, the United States will put off all passenger travel from Europe, on Friday for the next 30 days to stop the spread of coronavirus. This threatens the smooth functioning of businesses, notably those that have momentous exposure to the US. India has also banned the entry of any international cruise ship, crew or passenger with travel history to coronavirus-hit countries post to its major ports. India suspended all visas, except for diplomatic and employment reasons.
selling continues unabated
Foreign institutional investors have proceeded to sell Indian stocks.
In March, they withdrew a net Rs.20,831 crore from domestic markets. Since February 24, FIIs have been the net sellers every day, as per the National Stock Exchange. Dalal Street experts debated that the bargain has been largely due to ETF redemptions. With investors liquidating their assets, money managers have been forced to sell, further putting pressure on domestic stocks.
Uncertainty in the bond market
Uncertainty in the bond market due to some adverse bid by the Reserve Bank of India has alarmed investors. In the draft plan to restructure YES Bank, the banking regulator proposed to write down additional tier AT1 bonds, surprising money managers. Analysts have warned that the AT1 bond market could die in case RBI provides no relief. Many mutual fund venture capitalists stand to lose if RBI goes with its bids. India’s financial structure has come under serious stress due to the series of catastrophes starting with PNB and then aggravating with IL&FS, DHFL, and PMC Bank.
Global market selling
The massive selloff in the major markets also humidifies the mood on the Street. MSCI’s broadest index of Asia-Pacific shares outside Japan fell 3.2 percent and touched its lowest level since early 2019, while Japan’s Nikkei crumbled 5.3 percent. European shares were also staring at opening deep in the red as Euro Stoxx 50 futures plunged 8.3 percent to their lowest levels since mid-2016.
Act of God?
With sales virtually coming to standstill, companies have started evoking the ‘act of god’ clauses and delaying payments to their vendors. Investors fear with time, more companies may default or delay payments. Hero MotoCorp raised Force Majeure (which essentially frees them from an obligation to the unexpected course of events) to suspend full payments to vendors since it has “no visibility of receivables,” with sales have come to a standstill because of the Covid-19 lockdown.
Various research agencies have sounded the bugle of a flat growth if lockdown is extended. India’s gross domestic product (GDP) is likely to contract by 4.5 percent in the April-June 2020 quarter and will rise by only 2 percent in 2020-21 on the coronavirus impact, according to domestic rating agency ICRA or the Investment information & Credit Rating Agency.
Even RBI Governor Shaktikanta Das said the GDP growth projection of 4.7 percent in January-March quarter, which was necessary for India to achieve a 5 percent growth rate in full 2019-20 fiscal, is “now at risk from the pandemic’s impact on the economy”. Moody’s Investors Service on Friday slashed its estimate of India’s GDP growth during the 2020 calendar year to 2.5 percent from an earlier estimate of 5.3 percent. Commenting on the state of the global economy, the International Monetary Fund (IMF) said the world is in the face of a devastating impact due to the coronavirus pandemic and has clearly entered a recession.
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