The Coronavirus outbreak or the Covid-19 epidemic has already resulted in more than 42,000 deaths across the globe. Along with the high mortality rate, the pandemic is also responsible for crashes in financial markets across the globe. The oil price war between Russia and OPEC has worsened the existing scenario, negatively impacting global financial markets.
Coronavirus impact on India and global markets: When did it begin?
March 12, 2020 was called the ‘Black Thursday’ because this was the day when financial markets across the world registered the greatest fall. The fall as measured in a single-day percentage was the highest since the stock market crash in 1987. Indian market also reacted sharply to the crash, and the Nifty fell by around 8%.
The next day, however, Nifty, bounced back by around 5%. The indices in US markets also registered gains of over 10%. Over the week, the US Federal Reserve initiated emergency rate cuts. When markets opened on Monday, brisk trading was expected. But, the US market crashed more than the previous Black Thursday, registering a fall of around 12.7%. This fall – despite corrective measures – was unprecedented in global financial markets.
In India, Sensex fell by around 32% from January to March 19 – the fastest crash ever registered. Even during the times of previous market uncertainty, like the dotcom bust, Harshad Mehta scam and the financial crisis of 2008, the fall in the Indian financial market was spread over several months.
Impact of coronavirus on Indian and global markets: reasons for the sudden crash in markets – Initially, markets remained unaffected by the Coronavirus, despite the World Health Organisation (WHO) declaring it as an international emergency. Global market indices, including Sensex and Nifty were robust. Because of the inordinate delay in considering the magnitude and effect of the pandemic, stock markets entered the phase of panic selling. This downward spiral resulted in a sudden market crash.
Markets also failed to factor the standstill in the Chinese economy. China ,the global manufacturing hub and the largest consumer of different products and services, was battling Coronavirus.Both global production and consumption were negatively impacted by the crisis in China.
Coronavirus impact on markets : the present situation– The effect on Coronavirus outside of China was felt initially in Japan, Italy and Iran. With the identification of new cases in the UK, USA, Spain and France, the major world economies suddenly faced the magnitude of the pandemic. At present, governments across the globe have initiated control measures, like lockdowns, which in turn has negatively impacted market trends. Economic activities, like tourism, manufacturing, industrial production and services have hit an all-time low causing the financial markets to deteriorate further. According to market analysts, the present situation might result in global recession.
How coronavirus has hit Indian and global markets?
Emerging Markets (EMs) like India bore the brunt of the crisis in global markets. Typically, during the times of any global financial crisis, Foreign Portfolio Investors (FPIs) exit EMs towards safer investment destinations. The Foreign Institutional Investors sold off their investments in Indian equity markets, showing a total net outflow of more than Rs 25,900 crore from January to March 18. With the flight of investors and emergency rate cuts by the US Federal Reserve, Indian treasury bond yields also decreased from 6.6% to 6.4% in March. Gold prices failed to pick up, and Indian Rupee (INR) fell to an all-time low of 75.03 against the US Dollar ($).
Globally, the pandemic has shook the foundations of trading and supply chain. The United Nations (UN) has predicted that the world economy could shrink by 1% in the face of economic restrictions and inadequate fiscal response. In the face of the sharp decrease in consumer consumption across US and Europe, there is less demand for consumer products from developing countries. According to economists, global commodity production and tourism are the biggest segments to be affected by the Covid-19 outbreak. The three critical factors of the global economy: consumption, investment and exports have dipped sharply across countries.
Coronavirus impact on markets: will the existing trends change?
Market analysts and experts believe that the financial market could stabilise after there is a credible reduction in the spread of the pandemic. Policy initiatives, like measures to increase liquidity, taken by central banks are also expected to strengthen financial markets. Sustained credit growth, over long-term, can help the global economies to recover. Markets are expected to recover only after the threat of the pandemic is controlled and lockdowns are lifted.