The view of the stock markets across the world is gloomy. This leads the share market to frequently crashing in all parts of the world. The covid 19 impact on the stock market in India is reflected as a result of the fallout in global markets.
Financial markets in India are witnessing a blowback in the stock markets. The settling is in line with the global standard indices as the domestic market usually tracks the major global indices and the high volatility is likely to continue shortly.
Further, overseas investors (FPIs) flying to the safety of dollar-backed assets from emerging markets has led to a downfall in the share market. S&P BSE Sensex which was 42273 points on 20 January 2020 is 29894 points on 8 April 2020. The cost to Earnings Ratio of Sensex is less than 18, far less than the historical range (i.e.between 20-24).
Markets across the world have corrected sharply from their peaks. In FY20 the mid- cap index fell by 26 percent while the Sensex fell by 22 percent.
The Effect of Global Markets
Economists predict the growth rate in China to slow down up to 4 percent in the first quarter of 2020 from 6 percent in the previous quarter. The Eurozone is planned to contract by 0.1 percent in 2020, down from the 1 percent growth previously predicted. The covid 19 impacts on the global stock market have harmed the optimism of investors and driven down equity rates in markets.
In the US, the 10-year Treasury yield crashed for the first time in 150 years from 1.69 percent, after staying regularly at about 1.7 percent across 2019 and early 2020.
Before Covid 19, market property in India was about $2.16 trillion on each prime exchange. The market had witnessed a huge start at the beginning of the both NSE and BSE traded at their highest level ever, hitting peaks of 12,400 and 42,273 respectively.
COVID-19 is a black swan event
History has highly questionable events that catch everyone by surprise and can potentially impact the rank quo by disrupting human activities and creating havoc. Such kinds of actions are called black swans.
Mankind believed that all swans were white until 1967. The Dutch explorers sighted black swans for the first time in Western Australia, totally nullifying the belief that swans can only be white.
Thus, the term “black swan” modified into describing an event that occurred despite seeming impossible. The black swan is the event of a highly unexpected event that also has an extreme impact.
The field of finance constantly attempts to capture the outying of events and fails with comparable regularity. The impact of Covid 19 on the stock market is one such event, which has all the properties of the black swan.
Corona and Stock Market Unstable
India’s Stockmarket is undergoing a major increase in its volatility, during the lockdown, the regular average number of trades and the number of shares interchanged in the equity cash market segment increased remarkably.
NSE market volume data shows a huge fall (20 percent) in the average number of acquired contracts traded in March 2020 compared to the previous months.
On 20 March 2020, SEBI took measures to monitor the instability of the stock market and curb speculation by decreasing position limits to almost half of what was previously allowed in certain stock futures, limiting short-selling of index derivatives, and increasing the margin on those shares.
The Covid 19 impact on the stock market has pushed the Indian Standard index to a level that was witnessed during the Global Financial Crisis of 2008. Some industries such as hospitality, tourism, and entertainment have been affected and stocks of these companies have fallen by over 40%.
The Economic growth has been slowed down and it created impact on few jobs and high debt burdens among NBFC and others have highly contributed, in addition to that the coronavirus extension of lockdown has highly impacted the economy of India.
RBI and the Government of India have come up with a series of reforms in reaction to the current chaos, such as rate reductions, and other steps to improve liquidity in the stock market.
Recovery in the Stock Market at Current Stage
The Current situation has decreased the economies, we cannot expect a quick economic rebound from the Covid-19 effect. Though the financial crisis is unavoidable, considering all the efforts by central banks and fiscal authorities to soften the deep economic slump might be avoided.
Trade-In 2020 is expected to fall in every region of the world. But global trade could rebound quickly after that.
However, this would depend on how fastly the pandemic is brought under control, and the policy choices which the government take to keep up their economy.
We all know the situation is going unexpectedly worse due to the impact of Covid-19 on the stock market. On the other hand, if this pandemic is over with normalcy returning to business and the economy, the stock market will start moving in a positive direction leading to a faster recovery than expected.