Global stocks tumbled on Monday amid panic selling as a new strain of coronavirus emerging from the UK led to fresh travel restrictions, casting a cloud over the prospects of economic recovery.
The Sensex plunged 1,407 points, or 3 per cent, to end at 45,554 in its biggest fall in percentage terms since April, while the Nifty dropped 432 points, or 3.14 per cent, to end the session at 13,328. Monday’s fall saw investor wealth shrink by Rs 6.6 trillion, based on the market capitalisation of all listed companies on the BSE.
The new strain of the virus forced the UK government to impose fresh lockdown in London on Sunday, which requires more than 16 million Britons to stay at home. Moreover, many countries, including the UK’s regional neighbours, suspended travel from the island nation. Experts warned that the new strain was 70 per cent more transmissible.
“The rally was a little overdone over the last couple of weeks, and investors were looking for a reason to book profits. We have seen many stocks with no credibility in the books running up, and this is a global trend. The news about the new virus strain in the UK provided them with an opportunity to take money off the table,” said Saurabh Mukherjea, founder and chief investment officer, Marcellus Investment Managers.
Analysts said the mutant strain of the virus was worrying investors who were counting on the roll-out of the vaccine, and raised concerns on whether the spread of the pandemic would be brought under control in the near future. “There is worry amongst investors that the new strain of the virus could lead to lockdown across the globe during the holiday season,” said Andrew Holland, CEO, Avendus Capital Alternate Strategies.
Safe haven assets like treasuries and gold advanced.
The elevated levels of valuations in Indian equities also made investors turn cautious. In a note to investors, Nomura said the Street’s earnings growth expectations were high and market valuations were at a peak at a time when prospects of growth revival weren’t robust enough.
“Further, the Street seems to be ignoring the potential impact of GDP contraction in H1FY21 on future demand. Despite favourable liquidity conditions, credit growth and spreads have not improved thus far,” Saion Mukherjee, head of India equity research, Nomura wrote.
The benchmark indices had risen more than 80 per cent from its March lows on the back of buying by foreign portfolio investors (FPIs), and due to optimism surrounding progress in vaccine trials in the last one month.
Jyotivardhan Jaipuria, founder, Valentis Advisors, said the market valuations were expensive and returns in the next few years would come from earnings growth. “Investors hope that next year will be normal as people get vaccinated. If earnings growth is robust, then we could be looking at market returns which are in high single digits,” said Jaipuria.
Experts said measures taken by the Biden administration vis-a-vis tax hikes and stimulus, and the smooth roll-out of vaccination would determine the market movement.
“And lastly the US dollar affects the performance of emerging markets like India. If the dollar continues to depreciate, it’s good for India,” said Jaipuria.
Indian manufacturing companies like Tata Steel, UPL, SRF, Motherson Sumi, Balkrishna Industries and Tata Motors have exposure to Europe and the UK. Their stocks were down between 4.6 per cent and 9 per cent on Monday, much higher than the 3 per cent fall in leading indices.
As many as 466 stocks were locked in the lower circuit on the BSE on Monday. The market breadth was highly negative with total advancing stocks at 564 and those declining at 2,472 on the BSE. All the Sensex components ended the session with losses. ONGC was the worst-performing Sensex stock, and ended the session with a loss of 9.15 per cent. IndusInd Bank, Mahindra & Mahindra, and State Bank of India fell more than 6 per cent. All the BSE sectoral indices ended the sessions with losses. Infrastructure and Metal stocks fell the most, and their gauges fell 6.3 per cent and 6.1 per cent, respectively.
Analysts said the presence of highly leveraged stocks and fears of metal prices crashing led to the steep fall in these sectors. “When the market falls, investors exit stocks which are unlikely to hold on to the gains. If there is an economic slowdown metal prices will crash,” said Siddhartha Khemka, head of research (retail), Motilal Oswal Financial Services.
FPIs sold shares worth Rs 323 crore while domestic institutional investors bought shares worth Rs 486 crore.