The S&P BSE Sensex is set to report its biggest quarterly fall in history of the stock market, with the benchmark index slipping 31 per cent during January-March 2020 quarter till Monday. The markets have entered a ‘bear phase’ on the back of panic triggered by the rampant spread of coronavirus (COVID-19). Typically, a fall of 20 per cent or more from the peak level for a stock or an index is considered as a bear market territory for that traded unit.
On the other hand, the Nifty 50, which declined 31.9 per cent, is likely to record its sharpest quarterly fall since June 1992 quarter when it fell 32.2 per cent during the quarter, while the Sensex had tanked 28.1 per cent during the same quarter.
For the financial year 2019 – 2020 (FY20), the Nifty50 (down 28.8 per cent) and Sensex (down 26.5 per cent) recorded an over 25 per cent fall till Monday, March 30 – their worst performance in over a decade. Earlier in FY09, the S&P BSE Sensex had recorded 37.9 per cent fall, while the Nifty slipped 36.2 per cent during the period as global financial crisis (GFC) roiled markets and economy.
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Meanwhile, foreign portfolio investors (FPIs) have pulled out net of Rs 55,007 crore (approx. $7.4 billion) from Indian equities in March 2020. The outflows during the month is the highest monthly outflow on record going by the National Securities Depository (NSDL) data available till 2002.
Going ahead, most analysts say the markets are factoring in the 21 day lockdown as of now and will track the developments regarding Covid-19 related cases – both at the domestic and at the global level. Any extension in the lockdown back home can dent the market sentiment further.
“Nifty correction already factors in the impact of around one-month lockdown and return to business normalcy by the end of the first quarter of FY21. However, if the lockdown is more severe and the business impact extends well into Q2, we see further downside,” says Varun Lohchab, head of institutional research at HDFC Securities.
A sharp fall in benchmark indices was led by the financial sector, including banks, non-banking financial companies (NBFCs), housing finance companies (HFCs) and insurance companies. Auto, metal and real estate sectors, too, were among the worst hit. These sectors underperformed the market by falling between 42 per cent and 46 per cent during the quarter. However, pharmaceuticals and fast moving consumer goods companies (FMCG) sectors outperformed the market by falling 14 per cent, while information technology (IT) sector was down 21 per cent.
IT, consumer staples, pharma and chemical sectors, according to Lochab, are likely to ride out the current turbulence with low earnings hit and should form key portfolio weights. Telecom will also be largely insulated and may actually benefit owing to higher demand in the near term.
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“While BFSI may have to absorb some negative impact on the economy, we continue to prefer large sector & niche market/segment leaders, given sharp price correction and resilient business models. Consumer discretionary like autos, retail, entertainment, eating out and aviation are already facing demand shocks and will take time to normalise,” he says.
Of the 538 stocks from the S&P BSE500 and Nifty500 index, 114 stocks have seen their market price more-than-halve during the quarter. The list includes IndusInd Bank, RBL Bank, Bandhan Bank, Indiabulls Housing Finance, PNB Housing Finance, Vedanta, Hindalco Industries, Zee Entertainment Enterprises, Tata Motors and Oil and Natural Gas Corporation (ONGC). Other 221 stocks were down in the range of 30 per cent to 50 per cent.
“Over the next few months – once the Covid-19 impact settles – companies will assess the damage and that’s when another round of selling will come that can take the Nifty to even 6,500 levels before it stages a recovery. Over the next few years, we may even see a new high,” says A K Prabhakar, head of research at IDBI Capital.