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Virus fears on Indian market temporary; history shows a sharp rise after such corrections

Market experts are assessing the impact of coronavirus viz-a-viz the 2002-2003 spread of Severe Acute Respiratory Syndrome (SARS) and several other such sudden outbreaks.

January 30, 2020 / 01:33 PM IST

A sudden outbreak of coronavirus in China is weighing on equity markets globally as investors are shifting their wealth from riskier equities to safe-haven assets, fearing that the virus outbreak may derail the pace of economic growth.

The outbreak, which started in the central city of Wuhan late last year, has killed nearly 200 people, and has infected nearly 8,000 so far in China alone, media reports suggest.

The novel outbreak of coronavirus can hit the trades between the countries and distort the supply chain in the market. Besides, the widespread availability of social media platforms is also amplifying the market anxiety like never before which could trigger even some panic selling in the market, experts pointed out.

Market experts are assessing the impact of coronavirus viz-a-viz the 2002-2003 spread of Severe Acute Respiratory Syndrome (SARS) and several other such sudden outbreaks.

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As such sudden shocks restrict economic activities to some extent, their impact on the stock market cannot be negated.

However, data from Ace Equity shows that the market shows resilience soon to such pathogen outbreaks and barring few exceptions, the market moved sharply higher after witnessing a correction due to similar disease outbreaks.

During the 2002-2003 SARS outbreak, BSE Sensex corrected for about 5 percent within a month, but emerged from the negative territory soon, surging up to 29 percent in the six-month period.

Deases & markets

Besides, it should be noticed that the outbreak of Swine Flu (H1N1) in 2009 failed to have any impact on the market as the BSE Sensex surged 19 percent in a one-month period and a whopping 79 percent in a six-month period during that time.

While the market reacts to such negative developments sharply, but their long-term impact on the market has been dismal.

"I firmly believe that after the Budget, within 10 days the market will recover from the impact of coronavirus. So far, the fatality rate is only about 1 percent compared to SARS. So, after Budget it will take 1-2 weeks for the market to come to normal," said G. Chokkalingam, Founder of Equinomics Research.

Sameer Kalra, Founder of Target Investing pointed out that the stock-specific impact in the Indian broader market is low even now and the most important thing is to track the acceleration rate of the disease.

"Indices, especially MSCI, for all countries will remain impacted until the acceleration of the virus peaks out. As passive funds are seeing extreme outflows. But the stock-specific impact in the Indian broader market is low even now. It’s important to track acceleration rate," Kalra said.

At this juncture, the most important trigger for the market is the Union Budget 2020 which is scheduled on February 1. Moreover, the quarterly earnings will cause stock-specific volatility while the movement of crude oil and rupee and the inflow of foreign funds will also have their say in the market.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Nishant Kumar
TAGS: #markets
first published: Jan 30, 2020 12:09 pm

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