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Bulls slip back into coma as stocks sink to 30-month lows

The renewed slump came after the market rose 4 per cent on Friday, posting its strongest ever comeback after plunging 10 per cent for the first time in 12 years.

ET Bureau|
Last Updated: Mar 17, 2020, 07.56 AM IST
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The riskoff sentiment among foreign funds deepened with these investors pulling Rs 3,809 crore out of Indian stocks.
The stock market plunged 8 per cent on Monday to a 30-month low, tracking a renewed global collapse as the US Federal Reserve’s monetary bazooka failed to assuage global investors who remained uncertain about the efficacy of near-zero interest rates to combat a coronavirusridden downturn. Investors were more worried about the implications of shutdowns in large European countries aimed at preventing the spread of the virus, resulting in stocks slipping deeper into a bear market and the Volatility Index or VIX — a fear measure — surging to its highest level in 11 years. India too is facing the spectre of large-scale shutdown with the government ordering closure of schools, colleges, gyms and theatres across the country. The Maharashtra government has asked all private sector firms to take steps to ensure that majority of people work from home.

In the first such move since the 2008 global financial crisis, the US central bank on Sunday cut interest rates to near zero and said it would buy $700 billion in government debt. But the unprecedented move backfired with investors worrying that the monetary intervention will be ineffective to deal with a pandemic-induced slowdown.

“With the Fed emergency policy actions risking so far to create more collateral damage than hitting their intended target, market confidence is being shaken in the central bank’s crisis management capabilities, its understanding of market technicals and its communication abilities,” said Mohamed El-Erian, chief economic adviser at Allianz in a tweet on Monday.

The Sensex dropped 2,713 points, or 7.96 per cent, to close at 31,390 while the Nifty declined 756.10 points, or 7.6 per cent, to end at 9,199.10. Both indices fell to their lowest since September 29, 2017.

The renewed slump came after the market rose 4 per cent on Friday, posting its strongest ever comeback after plunging 10 per cent for the first time in 12 years. Other Asian markets too tumbled 2-5 per cent on Monday. European stocks suffered yet another collapse with the STOXX Europe 600 diving 9.5 per cent at the time of going to print reacting to the drastic measures including lockdowns in various countries. US markets continued to tumble on Monday. Trading on the three main indices — S&P 500, Dow Jones Industrial Average and Nasdaq Composite — was halted for 15 minutes soon after the market opened over 7 per cent lower. This is the third such halt in six sessions. The three indices were down about 9 per cent at the time of going to press. Meanwhile, Brent crude plunged 10 per cent, dipping below $30 a barrel for the first time since 2016.

Stock market snip 1

Spain has imposed a 15-day nationwide shutdown as the country has the highest number of coronavirus cases after Italy.

Germany and France too have fortified their borders to curb the spread of the pandemic, according to news reports. China, from where the virus originated, is suffering from the consequences of the stringent steps it took to restrict the spread of the pandemic. Its industrial output dropped at the fastest pace ever in the first two months of this year So far, there are over 170,000 cases of Covid-19 worldwide and over 6,500 deaths. The growth in the number of cases amidst the shutdown are keeping investors nervous.


“At this juncture, the markets are looking whether there is any direct intervention to tackle those issues which the real economy is facing,” said Taher Badshah, chief investment officer, Invesco Mutual Fund. “India is sailing with global uncertainty. In the next couple of weeks, investors are going to see how India can control the spread of the virus.”

At home, the VIX rose 16 per cent to 58.88 — its highest since August 2009, suggesting near-term risks to markets remain. But the pace of increase in VIX on Monday was slower compared to the recent sessions, which could be an indication that traders see limited downsides from current levels for the moment. VIX has risen 326 per cent from February 19 amid the 24 per cent fall in the Nifty.

The riskoff sentiment among foreign funds deepened with these investors pulling Rs 3,809 crore out of Indian stocks. Domestic institutions — insurers and mutual funds — were buyers worth Rs 2,614 but their purchases failed to stem the slide.

Foreign portfolio investors (FPI) have dumped shares worth Rs 44,000 crore since February 19 — the highest ever quantum of outflows in about a month.
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