Mumbai/Singapore: Indian assets suffered a rough start to the week as stocks posted their worst-ever day on record as trading resumed after a system-wide halt, and the rupee hit a new low following a lockdown in much of Asia’s third-biggest economy.
The S&P BSE Sensex and the NSE Nifty 50 indexes crashed 13% each at the close in Mumbai, just shy of the 15% mark that would have set off the day’s second halt. The gauges earlier sank 10% within minutes of the opening bell, tripping circuit breakers. The currency slid 1.4% to 76.2750 per dollar, all-time low.
Prime Minister Narendra Modi and state leaders over the weekend imposed an almost-complete lockdown as cases of coronavirus spiked, a move that threatens to worsen an economy that was showing signs of turning a corner in the first two months of the year. The central bank, which is due to review policy April 3, is injecting both rupee- and dollar-liquidity and has pledged to do more to ensure financial markets function smoothly.
“The pandemic comes at a time when India was showing some signs of emerging out of a slowdown and this has been a setback,” Shibani Sircar Kurian, head of equity research at Kotak Mahindra Asset Management Co. said by phone. “A prompt announcement of financial and monetary measures can help clam the market nerves.”
The RBI earlier today said it will add 1 trillion rupees of cash in the banking system as a pre-emptive step toward meeting liquidity requirements. It also advanced an auction to buy bond to March 26 from March 30. Last week, the authority took steps to boost liquidity but held back from following global peers with a rate cut.
The measures have so far failed to convince markets, and foreigners have dumped $12.5 billion of shares and bonds this month amid the global rush for dollars.
Meantime, the spike in volatility in the equity markets — the India NSE Volatility Index is near a multi-year high — and thousands in the financial industry working from home have led to questions about whether stock exchanges should remain open. The finance ministry and the market regulator have come out in favor of keeping markets open for now despite the travel restrictions. Trading volumes in the Nifty were about 22% below the 30-day mean at the close, according to data compiled by Bloomberg.
“Though we are able to run the show, it is not business as usual as collecting payment and executing trades is difficult,” said Dharmesh Kant, head of retail research at Indianivesh Securities Ltd. “The only people befitting from this are algorithmic traders.”
India’s market regulator on Friday evening raised margin requirements and capped equity derivatives exposure to discourage traders from aggressively building short positions and at tame volatility in the nation’s equities. The Sensex last week marked its biggest weekly decline since October 2008.
“If India manages to avoid exponential growth of Covid-19 in the next two-to-three weeks, then with today’s fall, the market has priced in” the spread of the infection, said Chokkalingam G, head of investment advisory at Equinomics Research & Advisory Pvt. in Mumbai. “If the lockdown continues beyond a month, then a further 5% to 10% slide can’t be ruled out.”