Indian Markets - A Week Against Coronavirus & Crude Oil Fall

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.

Also read: The On-going Oil War (2020) – Causes & Effects

— 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%.

Also read: Coronavirus- How it Infected Stock Market & Indian Economy!

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
  • GAIL
  • Gillette

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. 

— 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
Nifty Media 16.03%
Nifty IT 13.56%
Nifty Metal 12.85%
Nifty Realty 12.57%
Nifty CPSE 12.57%

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.

impact of coronavirus on stock market

Coronavirus- How it Infected Stock Market & Indian Economy!

Impact of Coronavirus on Stock market and Indian Economy: The Indian stock markets have been in turmoil over the past few months due to slow economic growth. The market was only recovering with government taking some major initiatives like rate cut in corporate tax, infusing money in the economy, disinvestments, lowering repo-rate, etc., until another crisis hit a new wave of major economic slowdown pushing the indices (SENSEX and NIFTY) to their decades low.

In this article, we’ll discuss what exactly is ‘Coronavirus’ crisis and what are the impacts of coronavirus on stock market & Indian economy. Let’s get started.

What is the ‘Coronavirus’ crisis?

COVID-19 a pandemic most commonly known as ‘Coronavirus’, which started in China has now breached the international borders and has spread to nations across the globe. Among the infected nations some of the major economies that are facing severe damages are South Korea, Iran, Japan, Italy and now India has been added to the list.

The nations are not only facing a loss of life or an exponential increase in the number of infected individuals, but the economic growth has also been dented by this pandemic.

The global economy is facing a rough time due to the outbreak of the ‘Coronavirus’, which started in China. ‘China’ is the worlds’ largest manufacturing hub and one of the largest exporters of goods. China accounts for almost 16% of global exports.

Being the epicenter of the virus the economic activities in China contracted as the health emergency called for shut down of offices, factories, schools, etc. This contraction had a dominos effect on the economies across the globe as a majority of ‘supply chains’ globally are sourced from China.

How is the exposure of ‘Coronavirus’ impacting the Indian Economy?

India is China’s second-largest trade partner making the trading roots even deeper and hence the impact on Indian markets is huge. India happens to be a net-importer from China. India’s merchandise import from China accounts for almost 18% of its total imports from around the world, while the exports account for almost 9% of the total exports around the world, as of CY2019.

Due to the economic activity contraction in China, industries and companies directly related to imports and exports from and to China are facing a crisis. Some of the major sectors affected in India are-

  • Auto-ancillaries imports constitute 18% of total imports from China, whereas tyre imports include approximately 30% of imports from China, resulting in a shortfall of raw materials and auto-parts for OEMs and automobile manufacturers.
  • Consumer Durables industry imports constitute almost 45% of total imports from China making it highly reliable on Chinese manufacturers.
  • 67% of electronics (mobile phones, laptops, etc.) are imported from China. Due to a high dependency on Chinese imports, the domestic contract manufacturers will only be benefited marginally as the manufacturing capacity in India is quite low in comparison to China. Hence domestic industry players cannot fill the supply gap.
  • India exports around 34% of its total ‘Petrochemicals’ to China. As a result of the contraction in the economy, the demand will fall and the prices of petrochemicals will take a hit and margins will be under pressure.
  • Pharmaceutical Industry imports around 69% of its pharma drugs and intermediates from China. However, the companies have maintained enough stock for 2-3 months promising a less affected Q4FY20.
  • Others- Gems and Jewellery (India exports 36% of diamonds to China); Seafood (India’s exports to China accounts for ~22% of its overall seafood export); Solar Panels (India imports ~70% of solar modules from China); Shipping & Logistics (China is the largest consumer of Iron Ore, Coal, Oil & Gas hence affecting the demand and trade via sea-routes); Textiles (India exports 27% of total cotton yarn to China)

(Source- CRISIL February 2020 Report)

Market discounts information on a real-time basis, thus the aftereffect of the virus outbreak on the Chinese economy and on the above-listed industries and sectors can be seen evidently as the stock prices of related companies and sectoral indices fell in the past one week. Negative investor sentiment can be directly witnessed with the market breaking down to new lows with every passing day.

Further, the sectors and commodities, which are indirectly connected to the above-listed industries, will have a subsequent impact like the Oil prices falling, etc.

The weight of the above-listed Industries in the contribution of India’s GDP growth is high thereby affecting the economy at large.

India – Q4FY20 Outlook

The performance of Q4FY20 is still in question as many sectors like ‘Pharma’, sourcing supply chains from China have already stocked their inventories for almost 2-3 months absorbing the losses that could have occurred due to shortage of raw material supply. While on the other hand, the electronics market might take a major hit due to the shortfall of supply. Some of the top mobile phone companies like ‘Apple’, ‘One Plus’, ‘Xiaomi’ etc. have there manufacturing hubs in China, additionally among the top mobile phone companies majority are Chinese brands.

The uncertainty isn’t much as one can easily do the math of India’s dependency on China. Hence the answer is crystal clear. What needs to be addressed is to what extent can Indian economy be damaged and what will be the governments’ contingent plan to the bailout the Indian economy.

Though it is too soon to say the measure of impact, as Q4FY20 numbers are yet to come out.

Also read: Revisiting 2008-09 Economic Crisis – Causes & Aftermath!

Is the falling Chinese Economy a Silver Lining for India?

India has been running its own race to achieve a target of becoming a $5 Trillion economy. The economy has been thriving with the government taking some important measures to make India self-sufficient and attractive for foreign investors.

China is a world manufacturing hub and a net-export country. The dependency of the world economy on China is too high and hence, concluding that the current economic contraction in China is an opportunity for India is too soon and illusionary. Further, the manufacturing capacity in India is far too less than China and cannot be sufficient for an instant shift. A business shift takes immense time due to strategy and cost-effectiveness. Thus India might be a good substitute for China, but in order to replace China, it has a long way to go.

Future Outlook on the Dalal-Street

The root cause of the falling stock prices and indices is the uncontrollably spreading ‘Coronavirus’. The cure for the virus has not been found yet and the number of infected individuals has been increasing with every passing day.

The investors have become so pessimistic about the future outlook of the Indian economy, that pulling out money from investments looks much safer and promising to avoid further after-effects of the virus on the industries and economy.

The fall will continue until the virus is not controlled and continues to spread contagiously affecting the economies. Some positive outlook on the vaccination or control of this pandemic seems to be the only solution that can rest the fear of the investors.