Fear of extended coronavirus lockdown pulls indices into red zone

Last week, the indices had rallied 13 per cent and were on the cusp of a bull market - a term used for a 20% rise from recent lows

The benchmark indices fell on Monday as investors fretted over the prospects of an extended lockdown and its impact on corporate earnings. The Sensex declined 470 points, or 1.5 per cent, to 30,690, while the Nifty fell 118 points, or 1.3 per cent, to end at 8,994.

Last week, the indices had rallied 13 per cent and were on the cusp of a bull market — a term used for a 20 per cent rise from recent lows. The gains were underpinned by strong buying by foreign portfolio investors (FPIs). However, they seem to have resumed their selling, with the provisional data showing FPIs were net-sellers and offloaded shares worth Rs 1,243 crore on Monday. Domestic institutions, too, sold shares worth Rs 1,100 crore.

Many chief ministers in a meeting with the prime minister on Saturday had requested for an extension of the lockdown mounting rising Covid-19 cases. Several states, including Maharashtra, have already extended the lockdown for two weeks. Prime Minister Narendra Modi will address the nation on Tuesday.

In a note to investors, Nomura said the nationwide lockdown will further aggravate the hit on corporate sector bottom-lines.

“Weaker firms will face cash-flow shortages and workers will face pay cuts or retrenchment. This, in turn, can create a vicious cycle of lower corporate capex and weaker consumer demand. As corporates struggle to repay their obligations, the banking sector's non-performing assets are likely to deteriorate further,” the note said.

Most global markets fell on Monday as investors prepared for the start of an uncertain earnings season.

“Covid-19 is a black swan event with far-reaching implications for businesses worldwide. The Indian economy is no exception with a stringent 21-day lockdown period underway,” said ICICI Direct in a note. The brokerage downgraded 2019-20 Nifty earnings by 4 per cent and 2020-21 earnings by a sharp 18 per cent.

Courtsey : Business Standard