Idices see biggest single day drop in 5 years

The global market slowdown caused by the corona virus hit the Indian markets on Friday, with benchmark indices suffering their worst single day decline in 5 years. The Sensex dropped 1448 points or 3.6 percent to end at 38297 the lowest close since October 14, 2019. The Nifty dropped 414 points or 3.6 percent to close at 11219. The rupee value has also fallen by 0.9 percent at RS 73.17 against the US dollar; this is the lowest drop in seven months. The sensex ended the week with 7 percent loss its worst since December 2009.

As on Friday 28 February 2020, more than 83000 people have been affected by the Corona virus in 53 countries. In the past few weeks the disease has been reported across different countries outside China. The Brent crude oil fell 12 percent over the week and ended the week at $50.8 per barrel. The spread of virus has led to closing of schools in Japan, In Iran Friday prayers were cancelled and Saudi pilgrims were barred from holistic sites. Last time such was the a virus hit china was in 2003, which was the ‘SARS’ but at that time china was not as big of an economy as today, it was not embedded in the global supply chain and the size of the global trade was smaller. According to Shankar Sharma founder of first global “even if spreads are contained, restoring normalcy would take months”.

Many brokers have lowered their earnings forecast after the lower global growth in coming quarters. Morgan Stanley has listed 3 scenarios that could happen. The brokerage says if the virus could be contained in the first quarter and if China returns to normal by the end of the month, the disruptions will be limited. The second scenario is that new cases arise in other parts of the world; in this case global growth would average 2.4 percent YOY in first half of 2020, before picking up in third quarter. And if the outbreaks persist till September it will lead to recession as it will encompass all large economies.