Statsguru: Oil price fall, coronavirus fear trigger global growth concerns

Last week, stock markets around the world saw significant volatility with benchmark indices dropping to multi-year lows. The coronavirus (COVID-19) outbreak and a sharp plunge in global crude oil prices triggered the fall.

On February 20, there were about 1,000 reported coronavirus cases in 26 countries outside of China with only eight deaths. The number has now soared to over 44,000 cases with 1,440 deaths across 117 countries, according to the World Health Organization (Chart 1). Fears that the spread of COVID-19 would push the global economy into recession have led to extreme risk aversion among investors.

This, coupled with the rift between Saudi Arabia and Russia to gain market share by keeping oil prices low, has further exacerbated these worries. In just 15 trading sessions, Brent crude has declined 42 per cent (Chart 2). The slump in oil prices has been accompanied by downward revisions in global economic growth estimates due to the spread of COVID-19.

As a result, since February 20, the benchmark Nifty has dropped 17.5 per cent (Chart 3), while the rupee has weakened by 3 per cent against the US dollar (Chart 4). Volatility in the financial markets has been amplified by selling pressure from foreign investors (Chart 5).   

Until a month ago, the Indian markets were hovering close to their record highs, belying weakness in the economy and poor earnings growth. Many analysts had turned sceptical about the markets prospects due to lack of fundamental support. The spread of COVID-19 and oil price slump proved to be perfect storm for the market, wiping out over Rs 29 trillion of Market capitalisation (Chart 6). 

The fall in the Indian markets has been in line other global markets (Chart 7).

StatsGuru is a weekly feature. Every Monday, Business Standard guides you through the numbers you need to know to make sense of the headlines. Compiled by BS Research Bureau