Market Participants Need To Be Cautious!
Till last week, Indian markets seemed somewhat immune to the virus news as dips were being relished and bought into the markets. However, in the recent week, it seems that Indian markets has eventually started to panic about the growing severity of Coronavirus after weeks of escape as Nifty has lost almost four per cent in the last five trading sessions. Further, global markets were also hammered. Dow Jones registered its worst two days’ point loss on record. With the recent declines, Dow and S&P 500 have given back all the gains of this year and have now negative year-to-date. What triggered a massacre in the markets? Recession fears are running wild in the markets as various countries combat the virus by isolating the suspected cases, which hampers economic activity. Additionally, fears of disruption to manufacturing supply lines grew with factories in China still struggling to re-open.
Nifty has registered a fall of almost 2.74 per cent in the month of February and it has declined nearly 4.40 per cent, year to date. With this sharp fall in the initial part of the New Year, Nifty has slipped below the widely followed 200-DMA. The broader markets that witnessed a scintillating performance in the month of January had underperformed the benchmark indices in the month of February as Nifty Mid-cap and Nifty Small-cap have plunged 3.55 and 5.04 per cent, respectively. Given the quantum of sell-off in the large as well in the broader markets, many stocks moved below their Budget Day lows and some even plummeted below September 2019 lows. This tells us that this is not a plain vanilla correction.
Unlike the previous recoveries, which have been V-shaped in nature after a panic sell-off, we expect it to be a U-shaped recovery, where the market may form a base for at least six-eight weeks because there is no obvious news headline that could tackle the fear of virus at this moment. Oil futures fell for the fifth day in a row, leaving the price of a barrel of WTI on NYMEX below $48. Falling crude oil usually sounds great for the domestic investors as it buoy India’s trade account and currency but this time, the fear of the rapid spread of Coronavirus is not making it a tantalising deal. As a result, in the domestic market, FPIs have been net sellers to the tune of Rs 6,800 crore since the beginning of week till February 26 and for the month till date; they have been net sellers to the tune of Rs 8,128 crore.
In US, some bulls might claim that the lower rates might comfort the economic effects of the respiratory infection but we believe that the market has already factored in the assumption of rate cuts to come and enjoy remarkably low borrowing costs already and it would not have the same impact as some of those that preceded it.
Amidst all this turmoil, some good news on D-Street for investors is that the public issue of India’s second largest credit card issuer SBI Cards & Payment Services is to hit capital market on March 2. It is an excellent opportunity for IPO traders to flip it on the opening pop as grey market indicates a bumper IPO.
Coming back to what is the way forward, at present; reports suggest that virus has spread to as many as 30 countries. The flip side of this is that the world will have more accurate information about the virus and when markets sense that the virus is peaked and plateaued, it will stage a recovery but till that time caution is the word for market participants and traders are advised to trade with a proper risk management strategy.
