The emergence of a virulent strain of coronavirus in the UK battered stocks worldwide, including India, on Monday as nations raced to shut air travel and reimpose travel restrictions, darkening the prospects of early recovery.
Indian stock benchmarks plunged 3% at the end of trading, the worst in Asia and the steepest single-day decline since May, as investors fretted over the possibility of fresh curbs squeezing economic activity.
During the day, the benchmark index BSE Sensex plunged as much as 4.34%, while the NSE’s Nifty index shed 4.57%. The Sensex ended trading at 45,553.96, while the Nifty closed at 13,328.40, down 3.14%.
Markets in the rest of Asia-Pacific were mixed. Mainland Chinese stocks ended higher, with the Shanghai composite gaining 0.76% while Hong Kong’s Hang Seng index declined 0.72%. The coronavirus situation in countries such as Japan and South Korea remained severe, weighing on investor sentiment.
India banned all flights from the UK till December 31 to prevent the new strain from spreading.
Flagging trade negotiations between Britain and the European Union and rising US-China tensions overshadowed positive news of US lawmakers reaching a deal for nearly $900 billion in Covid-19 financial assistance for struggling households and businesses.
Indian stocks tumbled as the new strain of coronavirus set off a panic, said Sanjeev Hota, head of research at Sharekhan by BNP Paribas.
“Also, the overhang on Brexit talks has added to negative sentiments. Further, lack of depth in the market owing to the holiday season aided to the big fall today. We expect the equities market to witness further volatility in the near term. Nevertheless, a correction after a big rally is always a healthy sign for the market, and provides good opportunity to add quality stocks for investment purpose,” he said.
Amid rising anxiety, the India volatility index or VIX surged the most in almost seven months. India VIX rose 4.52% to 23.19 on Monday. Rising VIX or fear index typically indicates corrections in the near term.
Besides the virus concerns, technical factors like put writers covering their positions by shorting in the futures market accelerated the fall, said Naveen Kulkarni, chief investment officer at Axis Securities.
“The macro set for India is still positive as economic activities are picking up, and liquidity continues to be strong. Passage of stimulus in the United States will provide downside protection to the equity markets,” Kulkarni said, adding that he expects stocks to fall by an additional 5%, providing investors opportunities to build long-term positions.
In 2020, foreign institutional investors have so far pumped $21.50 billion into Indian shares, driving benchmark indices over 12% despite a contraction in the domestic economy.
“With MSCI India’s valuation premium to Emerging Markets is now at 46%, 5% above the long-term average, we think overall markets could consolidate near term,” said analysts at BofA Securities.
The Indian rupee weakened against the dollar on Monday. The local currency closed at 73.79 against the dollar, a level last seen on December 7.