This week Indian market was impacted due to low carry forward in monthly F&O expiry as a result of global selling over fears that coronavirus (COVID-19) has turned in to an international problem given the high number of cases reported in many parts of the world.
Till last week, the market was of the view that COVID-19 would have minimal impact on the global economy as the situation was largely curtailed in China. It was forecasted that this will impact growth, mostly in the first quarter in China with limited effect on global economy.
But the higher number of new casualties in South Korea, Italy, Iran and Japan has changed this view, with a growing concern that it will slow down international trade given high correlation to the global economy.
Last week the United States market touched a new high on the assumption that growth is sustainable and the slowdown is not going to spread to the US, which is the largest economy and investor in the world. Now, the US is also fearful leading to a sell-off, down by around 12 percent in the last week, which is the fastest fall of more than 10 percent in the US market since the 1980s.
Till February 28, the US reported only 60 COVID-19 cases. In spite of this fear, please note that experts still maintain their thesis that the virus will be brought under control in the next two to three months as the climate will turn hotter in summer. Currently, the International Monetary Fund (IMF) is contemplating a 0.4 percent impact on China and 0.1 percent impact on world gross domestic product (GDP) in CY20.
We can expect the market to consolidate in the short-term and check the situation on a daily basis which can convert into an opportunity for long-term gains.
At the same time, we should note that many stocks are underperforming and reached a 52 week low. Please do not conclude that this as a large opportunity to make money. Since many of these stocks were already under pressure due to challenges which are company-specific, industry or promoter problems. Hence, these stocks are getting highly impacted given the cautious mode of the market.
So, it is possible that this trend may continue if no measures are found to resolve the legacy issue. It is advisable to look into the fundamental problems in the respective stock and understand if these are opportunities or threats. Post which you can consider the technical and chart analysis and check if we can expect a reversal in the trend in the short or long-term and invest, accordingly.
Regarding US President Donald Trump’s visit, the market was hoping for some positive developments such as a deal which would open more perks in the US-India trade. Though in vain, it is still expected that both countries are in positive negotiations and will have a better deal during the year. As per media reports, Prime Minister Narendra Modi has stated that India and the US have agreed to open negotiations on a big trade deal.
Trump has indicated that the much-awaited US-India trade deal is likely to be concluded by December 2020-end. The two countries have decided to take Indo-US ties to a comprehensive global partnership level. If done, it will be positive for the IT, pharma, defence and agriculture sectors.
The author is Head of Research at Geojit Financial Services.
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