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Bloodbath on D-Street! Sensex plunges 1,448 pts; 5 factors weighing on market

Sectorally, selling was seen in metals, realty, infra, public sector, capital goods, auto, banks, oil & gas and IT

February 28, 2020 / 04:13 PM IST

Tracking weakness in global markets, Indian indices witnessed a knee-jerk reaction which took benchmark indices to over four-month low. The BSE Sensex suffered a biggest single day loss (in absolute terms) since August 24, 2015.

The Sensex plunged 1,448.37 points or 3.64 percent to 38,297.29, the lowest level since October 14, 2019, while the Nifty50 shed 431.50 points or 3.71 percent to 11,201.80, the lowest level since October 7, 2019.

The market breadth was in favour of bears as about four shares declined for every share rising on the BSE.

The Indian rupee also saw weakness, falling 57 paise to 72.13 against US dollar.

Sectorally, selling pressure was seen in metals, realty, infrastructure, public sector, capital goods, auto, banks, Oil & Gas, as well as IT stocks.

We have collated a list of five factors which are weighing on markets:

Global Rout: Dow registered a record one-day points drop

Overnight, all three major US indices were on track for their steepest weekly pullback since the global financial crisis, said a Reuters report.

The Dow registered a record one-day point drop, which was also its fourth 1,000-point decline in history and the second this week.

The S&P 500 finished 12 percent below its February 2019 record close, marking its fastest correction ever in just six trading days, added the report.

In Asian markets, Japan's Nikkei lost 2.5 percent on rising fears the Olympics planned in July-August may be called off due to the coronavirus, the report said. Australian shares dropped 3 percent to a six-month low while South Korean shares shed 1.4 percent.

Global funds changed course in February and recommended a cut to equity allocations in their model balanced portfolio after taking them to a two-year high in January, instead suggesting an increase in bond holdings, Reuters polls showed.

More Coronavirus cases detected:

According to a Reuters report, California is monitoring more than 8,400 people who arrived on commercial flights for coronavirus symptoms from “points of concern.

Governments battling the pandemic - from Iran to Australia shut schools, canceled big events and stocked up on medical supplies.

In the United States, the Centers for Disease Control and Prevention late Wednesday confirmed an infection of unknown origin in California, said a Reuters report.

The coronavirus epidemic in Iran has cost 26 lives, the health ministry announced February 27, with vice president Massoumeh Ebtekar becoming the latest top official to be infected as the spread appeared to accelerate.

A global recession is likely if coronavirus becomes a pandemic, and the odds of that are uncomfortably high and rising with infections surging in Italy and Korea, Moody's Analytics said on February 26.

Caronavirus likely to impact supply chain, earnings:

Speaking to CNBC-TV18, Principal Economic Adviser Sanjeev Sanyal said that the impact of Caronavirus is still unclear and fluid. Supply chain disruptions are being monitored in real time.

He further added that CPI inflation likely to drop sharply in March reading as vegetable prices revert. The impact of lower energy prices will also show through on CPI inflation.

Many firms global and domestic have hinted at a slowdown in sales due to the outbreak of Coronavirus. Both Apple and Microsoft have warned about the impact virus on earnings.

On the domestic front, TVS Motor Company announced a production cut, due to the ongoing Coronavirus outbreak in China, said a report.

Earlier this month, the world's largest two-wheeler maker Hero MotoCorp also announced a 10 percent cut in production for February citing the pandemic Coronavirus as a major reason with the limited supply of crucial components, it said.

Investors await GDP Data:

India's GDP seen growing at 4.7 percent year-on-year in December quarter. India’s economy probably fared slightly better in the December quarter, before suffering a relapse due to the impact of the coronavirus globally, analysts said.

The median forecast of a Reuters poll of economists put annual economic growth at 4.7 percent in the December quarter, marginally higher than 4.5% in the previous quarter thanks to a small rebound in rural demand, private consumption and government spending.

But, the economy will face slowdown due to ongoing Caronavirus concerns, suggest economists. It would be tough to even grow at 4.5 percent, said one of the analysts polled by Reuters.

“One should note that China contributes about 16 percent of global GDP and the last time when we had the instance of SAARS virus it led to a decline of 50 bps in the Chinese GDP. Recent lockdown in Europe and threat in Iran also implies the outbreak is widely spread,” Pankaj Pandey - Head Research - ICICI Securities Ltd told Moneycontrol.

Technical View: Nifty likely to find support at 11300 levels

The Nifty50 broke below its crucial support levels of 11500 and 11,300 in a kneejerk reaction today. Rollover cost continued to decline, which is pointing towards the short formation.

Nifty rolls were near 77.6 percent, compared to the 3-Month average of 71.4 percent. The market-wide rolls were at 85.7 percent against the 3-month average of 87.7 percent.

“The Nifty is starting the new series with almost 15 million shares, which is the highest OI at inception seen in last six months. The continued pressure seen during the month can be attributed to the fresh addition during the settlement week,” ICICIDirect said in a report.

“Moreover, the ongoing fear about Coronavirus may have prompted additions of fresh positions. The roll spread has also declined significantly and did not move above even 10 points due to lack of long additions,” it said.

"Technically, Nifty has a sacrosanct support zone of 11,200-11,100 which coincides with the beginning point of corporate tax cut rally. There is a good chance that the market may stabilize here and witness a pullback rally next week towards 200-DMA of 11,687," Santosh Meena, Senior Analyst, TradingBells told Moneycontrol.

However, if Nifty slips below 11,100 due to worries of coronavirus then things may become ugly for longer-term where 10,700 would be the next support level, he said.

Kshitij Anand
Kshitij Anand is the Editor Markets at Moneycontrol.
first published: Feb 28, 2020 10:23 am