Indian Markets: A Week Against Coronavirus & Crude Oil Fall
Indian Markets Weekly Wrapup: As investors searched desperately for sightings of a leeway from the slumping market, last Thursday provided a worse off trajectory with WHO declaring coronavirus a pandemic. This led to the chokehold on various industries being tightened as it seemed to have contributed to the perfect two-punch combo to knock the Indian markets into a bearish slump.
Investors watched on as 11 lakh crore worth of wealth vanished with Sensex crashing by 2929.26 points. It was accompanied by the Bank Nifty falling 2951.45 points along with Nifty 50 which continued slipping further with a 950.40 points loss as Foreign Portfolio Investors sold off their holdings in the Indian markets. All closing at a two year low on Thursday.
The Wreckage through the week
The Indian market has already been suffering from the jabs from the economic slowdown, with added political tremors felt throughout the country due to riots, followed by the Yes Bank fiasco. Here we look at some other major events throughout the week.
— The Oil price hook
Last week, the crude oil prices were slashed to $30 a barrel. The cause was rooted in the Russian refusal to corroborate with Saudi Arabia in their plans to increase the crude oil output due to supply chain disruptions caused by the coronavirus scare. The scare had resulted in a worldwide demand slump.
This news only added to the Monday Blues in the US where the marginal cost of production touches $40 per barrel. Also globally, as this was the biggest drop in crude oil prices since the Gulf War.
However, this came as a relief to the Indian markets. Being the third-largest oil importer even a dollar drop per barrel would eventually result in an annual reduction in the import bill by Rs 10,700 crores. The benefits are still doubted due to the impact of the falling rupee against the dollar which currently stands at over Rs 74.
— The COVID-19 Overhand Punch
The novel coronavirus outbreak had a devastating impact on any industry based in China or majorly dependant on China. By March 2020, the novel virus spread out to 119 countries. This was followed by the existing panic being materialized which already had investors all around the world bracing themselves for further impact on the market.
On Wednesday 11th, March 2020 with cases touching over 118,000, World Health Organisation (WHO) declared COVID-19 a pandemic. This was followed by a bloodbath the following day which wiped out most of the bullish movement achieved by the Sensex and the Nifty in the last two years confirming investments in India to be locked in a bearish state. This also led to a global turmoil with Dow Jones(US) posting a 10% fall, its largest loss in history and the FTSE ( London) losing 11%.
Indian Stock hits after Coronavirus being declared a Pandemic
The following notable stocks touched their lowest in 52 weeks on 12th, March 2020:
- Reliance Industries (RIL)
- Tata Consultancy Services (TCS)
- HDFC Bank
- Hero Motocorp
Notable Industry-wise effects
— Corona vs Healthcare Industry
Other significant effects are also to be faced by the Healthcare industry in India as over 90% of the medical supply is sourced from China. Supply disruptions are already faced in sourcing Active Pharmaceutical Ingredients(APV) from China which are used in the manufacturing of antiretrovirals used in the treatment of HIV. These are crucial as they are also currently being tested on patients infected with COVID-19.
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— Corona vs. Airline and Tourism Industry
With WHO declaring coronavirus a pandemic, countries affected entered a lockdown. US banned travel from Europe and travel has been discouraged by the government.
This has led to the airline industry being affected by IndiGo airlines announcing an expected fall in the quarterly earnings after noticing a 15-20% fall in their bookings on a day to day basis. The shares of Indigo fell over 12% while Spicejet fell by nearly 20%. An even more severe impact expected in the tourism industry.
— Corona vs. Agriculture Industry
The effects of COVID-19 are now being experienced even in the agriculture industry due to its dependency on pesticides. The raw materials required are imported from China. The imports range from 40%- 90% depending on the chemicals required. If the current scenario persists this will eventually affect the food industry due to a reduction in the availability of pesticides which has already been plagued by rumors on a variety of foods that may aid the spread of the virus.
— Corona vs. Sports
Any action taken specifically to prevent the spread of the COVID-19 is laudable, but we can still note and relate to the impact that has been on entertainment and sports.
With multiple sporting leagues being canceled or played with closed doors the 13th edition of IPL has been suspended till April 15th. Estimated losses touching Rs.10,000 crores if canceled.
Effect of Coronavirus on Sectoral Indices
Last week, every Indian sectoral indices faced major losses (with only BSE Telecom facing a loss at 1.35%). All the remaining sectoral indices facing losses from 7.5% to 16.03%
|Biggest Losers – Nifty Indexes|
Outlook by End of the Week
With Friday, 13 March 2020, came the silver lining where market movements of Thursday were not repeated. Due to the effects of COVID-19 bearish markets were realized which were also noticed during the outbreak of SARS in 2003, Bird Flu in 2004, Ebola in 2014, and Zika in 2016. Here we can learn that the markets have always recovered into bullish positions and eventually performed better than ever.
Indians have already witnessed several decisions taken by the government that have led to being financial disasters, resulting in the eventual economic slowdown in the recent past. However, when the future of India is considered, there is little that can be done by a government in such market scenarios where it is trying to make up for the lead already gained by an outbreak.
Best option being to direct its focus on the root causes which involve the prevention of the virus spread and finding a cure before its too late. We have already learned from the effects on China and Italy where such outbreaks entering a lockdown phase result in graver consequences on the economy.
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Aron, Bachelors in Commerce from Mangalore University, entered the world of Equity research to explore his interests in financial markets. Outside of work, you can catch him binging on a show, supporting RCB, and dreaming of visiting Kasol soon. He also believes that eating kid’s ice-cream is the best way to teach them taxes.