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Rapid global spread of infection sends FPIs packing from D-Street

The Volatility Index (VIX) surged 8 per cent to 18.3, highlighting increasing nervousness.

ET Bureau|
Last Updated: Feb 27, 2020, 08.15 AM IST
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The Sensex closed below 40,000 for the first time since October, mirroring the panic in rest of Asia and Europe on worries that Covid-19’s impact on global economy would be worse than anticipated.
The stock market extended losses to the fourth day on Wednesday as foreign investors stepped up sale of Indian shares amid growing aversion to riskier assets in the wake of rapid global spread of the Covid-19 virus.

The Sensex closed below 40,000 for the first time since October, mirroring the panic in rest of Asia and Europe on worries that Covid-19’s impact on global economy would be worse than anticipated.

The Sensex ended at 39,888.96, down 392 points, while the Nifty ended down 119.40 points at 11,678.50. The indices have fallen 3.5 per cent in past four trading sessions.

FPIs offloaded shares worth Rs 3,337 crore on Wednesday, taking their total sales to over Rs 6,900 crore in past three days. Had domestic institutions not bought shares worth Rs 2,786 crore, the losses would have been sharper.

The Volatility Index (VIX) surged 8 per cent to 18.3, highlighting increasing nervousness.

The Nifty and Sensex have now entered a bearish trend on technical charts. Both indices are below their respective 200-day simple moving average, which is considered a major support level.

FPI snip 7

Piyush Garg, CIO at ICICI Securities, said the Nifty is expected to bounce back from the 11,600-11,700 levels if global markets stabilise. “If the global rout continues, then 11,000 could be the next level,” he said.

On Wednesday, the Stoxx Europe 600 index sank nearly 3 per cent — recording its longest losing streak since July. South Korea’s Kospi and Singapore’s Straits Times index lost 1.3 per cent each, leading the losses among Asian markets. The Dow Jones was up 0.45 per cent in early trade.

“The magnitude and nature of the recent market drops will fuel concerns about technical dislocations, possibly triggering more selling,” said Mohamed El-Erian, chief economic adviser at Allianz, in a tweet.

Worries about a global pandemic escalated after Covid-19 infections were reported from several countries in Europe and the Middle East. Austria, Croatia and Switzerland have reported cases following the recent outbreak in Italy, according to news reports. In Iran, 140 people have been infected, while the total number of cases in South Korea has climbed to more than 1,200. The virus, which erupted in China, has claimed over 2,000 lives there.

Jefferies said reports of infections from South Korea, Italy and Iran point to the risk of a global pandemic that, if not handled correctly, could swamp hospitals. The brokerage believes that given the flow of Chinese, Korean and Iranian nationals into North America, a large US community-based outbreak is likely. “If not managed correctly, this could significantly rattle markets,” said Jefferies.

Money managers believe Indian stocks will continue to see outflows if the global market rout does not end, even though the country has been relatively unaffected by the outbreak.

“The market fall is mainly because of the Covid-19 outbreak. Because of the scare about the spread beyond China, there are concerns that it may affect growth in the near term,” said Mahesh Patil, co-chief investment officer at Aditya Birla Sun Life Mutual Fund.

“Indian market valuations had run up in the past six months in the backdrop of global liquidity,” Patil pointed out.

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