It seems the markets might not be away from the impact of the deadly Coronavirus. A report by Livemint showed that investors have been selling the stocks with Nifty 50 being down 7% from in the past six trading sessions.
On Friday, Bajaj Finance Ltd was trading 7% lower. Experts feel that the impact of the virus can potentially start a long-term global slowdown. The fall in the trade is also due to the present equity valuations which are already stretched.
The report further states that both domestic and global markets were already trading at record levels and extremely high valuations a month ago. Nifty soared to a price-earnings multiple of over 19 times on the financial year of 2021 earnings, which is quite worrisome. Any slowdown in the global markets will see the stocks getting re-priced at lower rates.
The larger concern remains to what extent will the markets be affected by the virus. Europe is now registering new cases while America has also seen a spike in cases. Global equity research firm Jefferies has warned that the outbreak of the disease can not just cause a problem for hospitals but also rattle the markets as well. Jefferies further noted, “If not managed correctly, this could significantly rattle markets.”
Tourism, as well as the airline sector, are in danger of shrinking if the virus remains rampant. Due to Wuhan being the origin point of this disease, prices of major metals are down. Sectors such as pharmaceuticals and upstream oil and gas companies are also vulnerable to a slowdown since China accounts for about 15% of the global economy.
Although India is not directly affected, a global risk-off mode means foreign investors will be shuffling their portfolios and gold to safe havens such as US Treasuries. So, prolonged uncertainty in the equity market cannot be ruled out until the impact of the virus can be quantified and curtailed.
The markets can regain itself, depending on the pace to which the virus can be contained.
According to Marc Faber, the coronavirus is just the catalyst to a decline which had started by ignoring the slowdown of the global economy since 2019. So the virus simply has enforced its impact. On Friday, the BSE Sensex plunged nearly 1,450 points amid rising concerns of the virus.