Virus Rout ‘Unknown Animal’ Says Broker as Bears Grip India

(Bloomberg) -- On IIFL Securities Ltd.’s trading floor in Mumbai, 70 dealers spent most of the day on the edge, advising clients to hold off on buying the dip as the sell-off sweeping global equities gathered pace.

By the end of Thursday, Indian stocks had tumbled into a bear market to join equity benchmarks from Australia to Japan and Brazil to Italy -- a sign the pain from virus-fueled rout that’s erased trillions of dollars in global stock-market value may not be over yet, the brokerage said.

“We have seen big market falls, but in my 16 years in the stock market, I haven’t seen so much pessimism, which is now at its peak,” Janvi Desai, director at IIFL Securities, said by phone. “The past crises were event risks and were quick to get over but this is an unknown animal.”

All 30 members on the S&P BSE Sensex ended in the red, dragging down the index 8.2% to a two-year low, while the NSE Volatility Index surged to a level last seen in 2009 as fear rattled the $1.8 trillion market. A rough day across the region saw trading halts being triggered from Bangkok and Manila to Jakarta and Karachi as U.S. futures once again tumbled by the daily limit on concerns the virus outbreak will derail global growth.

The rupee, Asia’s worst-performing currency this month, fell to come within 0.5% from its all-time low. The currency has fallen almost 3% in March despite the slump in oil prices, a slide that prompted the Reserve Bank of India to announce $2 billion of dollar-rupee swaps Thursday evening.

“This is a clear hint from the RBI that they are coming in explicitly to support the rupee,” said Anindya Banerjee, currency strategist at Kotak Securities Ltd. The central bank is signaling that it will not hesitate to maintain the financial stability, he said.

Prime Minister Narendra Modi’s administration is exploring options to shield the economy that’s expanding at the slowest pace in 11 years, people with the knowledge of the matter said. The government late Wednesday suspended most visas in a bid to contain the epidemic as the World Health Organization declared the outbreak a pandemic.

“The travel restrictions further weakened investor sentiment as businesses like aviation and entertainment will see an impact,” said Sameer Kalra, a strategist at Mumbai-based Target Investing, which has about 7 billion rupees of assets. “There’s also a concern over the preparedness of different state authorities to contain the spread.”

Authorities estimate the virus will shave off about 30 basis points from the growth target. Growth was pegged at between 6%-6.5% in the year starting April 1, prior to the outbreak. Officials are also considering cutting retail pump prices of gasoline and diesel to match the fall in crude oil prices instead of raising duties to bolster revenues, they said.

Withdrawals

Foreigners have pulled $2.2 billion from Indian equities this month, the most since August. They unloaded 70.9 billion rupees ($956 million) of sovereign debt on Wednesday.

Still, this week’s plunge in the crude oil prices remains a bright spot for the nation’s struggling economy. The price of crude crashed more than 30% on Monday after the disintegration of the OPEC+ alliance triggered an all-out price war between Saudi Arabia and Russia.

“The rupee may not fall as much as other asset classes thanks to the oil price crash, which could save $35-$40 billion annually for India,” said Chokkalingam G, head of investment advisory Equinomics Research & Advisory Pvt. in Mumbai. “It’s a bonanza for the Indian economy.”

Even so, Chokkalingam said he is holding up to 26% cash in some equity folios and has stayed away from stocks in the past one week.

“The virus has turned out to be extremely deflationary because of the lockdowns and supply chain disruptions -- more than the trade war,” he said.

--With assistance from Ravil Shirodkar, Kartik Goyal and Vrishti Beniwal.

To contact the reporters on this story: Subhadip Sircar in Mumbai at ssircar3@bloomberg.net;Nupur Acharya in Mumbai at nacharya7@bloomberg.net;Ishika Mookerjee in Singapore at imookerjee@bloomberg.net

To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, ;Lianting Tu at ltu4@bloomberg.net, Ravil Shirodkar

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