Mumbai: Sovereign bonds in India rose to their highest in more than a decade and stocks fell the most since 2015 as rising risks to the nation’s financial system and a plunge in crude led to panic sell-off of risk assets globally.
The yield on the benchmark 10-year debt slid below 6% for the first time since 2009. It was trading down 13 basis points to 6.05%. The main equity index, S&P BSE Sensex, fell 5.2% to 35,634.95 marking its biggest drop since Aug. 2015. The rupee weakened 0.4%.
Oil markets crashed more than 30% on Monday after the disintegration of the OPEC+ alliance triggered an all-out price war between Saudi Arabia and Russia that is likely to give more headroom to RBI to cut rates. Meanwhile, the central bank seizing control of beleaguered Yes Bank Ltd. last week intensified the risk-off mood fueled by the spread of coronavirus cases in India.
“Recessionary conditions are emerging globally, and India can’t remain aloof from it,” said Naveen Singh, head of fixed income at ICICI Securities Primary Dealership Ltd. in Mumbai. “Brace for sharp reaction both from the government and the Reserve Bank of India.”
The fall in Indian stock markets is due to global factors, and the government doesn’t see any immediate need for measures to stabilize the markets or the economy, Economic Affairs Secretary Atanu Chakraborty said on Monday. The impact from the coronavirus and the fall in oil has led to volatility in markets, a Securities and Exchange Board of India spokesman said.
Also read: How the half-hearted rescue of Yes Bank has turned into a crisis
Still, the seizure of Yes Bank continued to reverberate with IndusInd Bank pulling a bond sale, citing weak market conditions.
The rupee fell as much as 0.5% with losses cushioned by the drop in crude prices and suspected dollar sales by state-run banks on behalf of the central bank. It was last down 0.4% to 74.06 to a dollar, not far from its record low of 74.4825 seen in 2018.
The Reserve Bank of India cut interest rates five times in 2019 to support an economy headed for its weakest expansion in 11 years, but has been on a pause since December following a spike in inflation. Nomura Holdings Inc. now expects two rate cuts of 25 basis points each in the April and June meetings versus its earlier call of a 25-basis-point cut in the second quarter, it said in a note on Friday.
“Weak sentiment, primarily led by concerns over the virus outbreak, has driven persistent selling by foreign investors in stocks while local buying hasn’t caught up. It does look overdone, but calmness will return only when we start seeing world getting a handle on the spread of the epidemic or a sense that it has peaked and will now taper,” said Dharmesh Kant, head of research, Indianivesh Securities Ltd.- Bloomberg
Also read: World economy watches and waits for China’s great reboot