Markets stage a smart recovery; Sensex, Nifty swing 16% in a day

Stock markets on Friday witnessed a roller coaster ride with key indices swinging by an unprecedented 16 per cent.

Just when investors were bracing for another day of mayhem after seeing indices collapse during the morning trading hours, stock markets witnessed a remarkable recovery, mirroring the US bourses.

In opening trade, the Sensex and the Nifty hit the 10 per cent lower circuit and the bourses had to be shut for trading for 45 minutes — the first time in 12 years.

While the Indian markets were shut, the futures of Dow Jones, S&P and Nasdaq, which were down by 5 per cent, suddenly started recovering and were up around 3 per cent within a matter of few minutes. The Sensex and the Nifty, too, managed to gain a record 16 per cent from their low levels.

The Nifty rose from a low level of 8,555 to touch a high of 10,159 during the day before closing at 9,955. The low point for the Sensex was 29,388 from where it rose to touch a high of 34,769 points, before closing at 34,103.

Nifty futures touched a low of 8,299, never seen in the last five years. Brokers said it was surprising that no Call Put writing took place at 8950 levels when the Nifty fell substantially. After two days of hitting the lower circuit, US stock futures on Friday hit an upper circuit. In India, banks stocks were buoyed by the positive settlement of the YES Bank crisis.

But whether the worst is behind for investors will still depend on how the world tackles the coronavirus outbreak. The volatility in the markets will continue till the US elections, experts say. Yet, some see the historic sell-off as an opportunity to capitalise on low stock valuations.

At the low levels on Friday, the Sensex and the Nifty have crashed by over 33 per cent from the high levels. Brokers said there has been huge unwinding of derivative positions by exchanges as margin calls got triggered over night. Foreign institutional investors sold stocks worth ₹6,027 crore in the cash segment. The recovery came as domestic institutions bought to the tune of ₹5,867 crore.

The markets are worried over the massive slowdown in the global economy due to the spread of the coronavirus and confusing signals from countries around the world, experts say. The response ranges from cancellation of global sports events to closing down borders, local theatres, restaurants and imposing restrictions on public gatherings, which may dent the economy and trade.

“There is fear and panic as markets are just looking at one or two quarters of growth and nothing beyond,” Raamdeo Agrawal, Joint Managing Director Motilal Oswal, told a news channel.

Irrational sentiment trumps

“The substantial market recovery, after hitting the lower circuit filter, is an extremely healthy signal for Indian equities. Fundamentally, the market was looking attractive, even at yesterday’s close, but irrational sentiment can override fundamentals in the short term,” said Amar Ambani, Senior President and Institutional Research Head, Yes Securities.

Ambani is of the view that 2020 will be highly volatile for stock markets. “From these levels, we’re sanguine on Indian equities from a 24-36 month perspective. We believe monetary and fiscal stimulus will come through soon, and low price of crude and cheap valuation will favour investment.”

The Indian rupee gained against the US dollar as the RBI intervened. The rupee, which had touched an all-time low of 74.57, closed at 73.75.

“RBI intervening and selling dollar in the market means they are preparing for a rate cut. The currency depreciates with every rate cut and the RBI is trying to ensure that the rupee does not hit new low levels when it has to cut rate in the near future,” said Rohit Srivastava, chief strategist, IndiaCharts.

The US Fed on Thursday announced a $500-billion cash infusion in financial markets and intervention in the interest rate market. Morgan Stanley, in a global note said, monetary response, in particular the expansion of central banks’ balanceheets, will be critical for unfreezing the financial markets.

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