The Indian markets soared 16 per cent from their lows on Friday as the global selloff triggered by coronavirus concerns showed signs of easing after central banks around the world announced measures to restore stability.
The Nifty plunged 10 per cent in opening session, leading to a trading halt for the first time in 12 years. During the hour-long trading break, US equity futures and the Asian markets saw a dramatic recovery underpinned by central bank measures, which helped repair investor sentiment bruised by stocks plunging to multi-year lows.
After dropping to 8,555, the Nifty managed to end the day at 9,955, up 365 points, or 3.81 per cent, over the previous day’s close — and 16.4 per cent over the day’s low. The Sensex, after slipping to 29,389, staged a 4,700-point come back to end at 34,103.
The sharply-lower opening in the domestic market, as well as in other Asian markets, came in the wake of a 10 per cent plunge — the worst since 1987— in the Dow Jones index of the US.
Throughout the day, stocks exhibited wild swings, with many gyrating in a 30 per cent band. A day earlier, the Nifty had ended at a 33-month low, pushing the domestic markets into “bear territory”.
To stem the rout, Asian central banks announced aggressive measures. The People’s Bank of China decided to inject $79 billion into the economy through a reduction in reserve ratios. The Bank of Japan offered to provide $20.8-billion liquidity, while the Reserve Bank of India and the Bank of Korea took steps to iron out currency fluctuations. Lawmakers in the US were also expected to unveil a legislative package to address the economic fallout.
The US Federal Reserve promised to start purchasing a range of treasuries -- a step that effectively marks a return to the 2008 crisis-era bond-buying programme known as quantitative easing.
The sharp recovery in the markets was on optimism around stimulus measures announced by various central banks, said Vinod Nair, head of research, Geojit Financial Services.
"After another sharp fall, some had to sell desperately to honour margin commitments. Following the early morning rout, huge value emerged in several stocks,” said U R Bhat, director, Dalton Capital India.
Apart from the stimulus packages, analysts said “short-covering” contributed to the dramatic recovery. Market players said the markets were not yet out of the woods as COVID-19 (disease caused by coronavirus) cases across the globe continued to rise.
Also, the selling by overseas investors showed no signs of easing. On Friday, overseas investors sold shares worth over Rs 6,000 crore, extending their 14-day sell-off to Rs 43,000 crore. After the latest jump, the Sensex and the Nifty are down 17 per cent from their all-time highs, logged in January. Sanjay Mookim, India Equity Strategist, Bank of America Merrill Lynch, noted while the market valuations had slipped below historical levels, further slide could not be ruled out.
"Sentiment around COVID-19 is driving global equities. Several large economies still need to contain the virus. This may require more drastic lockdowns and economic checks. That could drive a market to undershoot," he said.
Mookim said despite the sharp correction, "we have still not reached the 'Kid-in-Toy-Shop' moment". "Quality, steady-growth stocks are still far from being cheap," he noted. Analysts said it remained to be seen if emergency fiscal and monetary packages would be enough to avert a global recession.
"We cannot say for sure that it has reached the bottom for two reasons. One is volatility in the stocks markets; second is coronavirus. There is nothing to suggest that things that oil-producing nations have reached an agreement to cut production. As far as the corona outbreak is concerned, most of the developed countries are locked-in, and trade is going to be a big sufferer,” said Bhat.
The sharp drop in the indices in morning trade prompted a meeting of Securities and Exchange Board of India officials. "The domestic stock market has been moving in tandem with other global markets owing to concerns relating to the COVID-19 pandemic, the resultant fear of an economic slowdown, and the recent fall in crude prices," the market regulator said in a statement.