Manic Monday saw India’s bellwether S&P BSE Sensex suffer its worst single-day fall in terms of points as the 30-stock gauge plunged 1,942 points, or 5.2%, to its lowest close in 52 weeks. While the proximate trigger for the headlong selling spree was the global market rout induced by an oil price plunge , there are clear indications that the underlying investor sentiment has turned bearish. From the S&P BSE 500 index, comprising the top 500 BSE-listed companies across all key industries, to the S&P BSE SmallCap index, representing the smallest listed firms, there was virtually no corner left untouched by the sell-off. While every Sensex member lost ground, with 22 retreating at least 3%, both the broader gauges accounting for a combined 1,200 companies saw about 93% each of their constituents posting declines. The breadth of the losses is one sure indicator that investors are looking to exit equities for now with whatever gains they can muster, or worse in a bid to cut their losses. And Monday’s losses, while dramatic, have only extended a slide that has over the past month seen the Sensex and BSE 500 lose about 13% each, and the mid-cap gauge drop 14%. Coinciding with this slide has been a 116% jump in volatility as measured by the National Stock Exchange’s India VIX index, another ominous sign that prices are unlikely to stabilise any time soon. Also, foreign institutional investors have turned net sellers of their Indian equity holdings in a big way this month, taking the cumulative net sales since February to ₹10,658 crore.
With the Indian economy still in search of fair winds and the global outlook for growth getting bleaker with each passing day as the widening coronavirus outbreak threatens to push the world into its worst downturn since the 2008 financial crisis, a sustained sell-off looms. To complicate matters, the proposed State Bank of India-led bailout of capital-starved Yes Bank may be a far tougher challenge than appeared at first flush. Among the hurdles is a legal challenge to the plan by holders of the troubled lender’s Additional Tier-1 bonds. And the best intentions of the Centre and efforts by the RBI notwithstanding, any failure to expedite the resolution at Yes Bank runs the risk of undermining wider banking sector stability. To be sure, already there is talk of concerted central bank action among the leading western economies as well as likely fiscal measures to address the threat posed by COVID-19. The U.S. Federal Reserve last week made an emergency cut in its benchmark interest rate and President Trump is contemplating a raft of steps including a payroll tax cut. The RBI and the Centre too would ideally need to move in lockstep with measures to ensure adequate liquidity to help bolster sentiment at this time of market and economic fragility.
