Volatility

Covid 19 Effect
The single biggest reason of the ongoing volatility is the global coronavirus pandemic. The
pandemic has led to concerns that global economic growth will get deeply affected. The
International Monetary Fund (IMF) has already said that the world has entered a recession
that is as bad or worse as 2008 when the global financial crisis happened. In India, investor
concerns have led to foreign portfolio investors (FPIs) selling equities 
US ripple effect:
The US is the biggest economy in the world. And the US dollar is considered to be the
currency of reference for all countries. As a result, big market movements in the US markets
invariably have a ripple effect all over the world. When the Dow Jones fell, the impact was
felt, in varying degrees, across all major economies, including India.

Global trend
Indian stock markets are not the only one to show showing apprehensions on the account of
US-China trade tension. Similar trends were seen in China, Japan and Korea among major
Asian markets while European stocks also traded on Monday.

Risk of fiscal slippage:

The government has outlined a fiscal deficit target of 3.5% of GDP for 2020-21 which is
12.7% higher than the revised estimate of 2019-2020. And while the fiscal deficit is
according to expectations, many experts are of the opinion that there could be risks of
slippage if economic activities do not formalise rapidly in the year.

NBFC crisis
Several non-banking financial companies are in deep trouble with Corporate Affairs
Secretary Injeti Srinivas admitting, according to news agency PTI, that there is an "imminent
crisis" in the sector.
The crisis is blamed on the misadventures by some large entities. The credit squeeze
presents a perfect recipe for disaster in the sector.
Many large corporate entities have defaulted on debt servicing. This comes close on the
heels of the IL&FS (Infrastructure Leasing & Financial Services Limited) turmoil.

Capital outflows
Foreign institutional investors (FIIs) seem to be panic stricken. They net sold equities and
debt worth $ 15 billion in March) itself. This has added to the prevailing bearish sentiment in
the share market.

Liquidity crunch
Further, there is liquidity crunch in the Indian market. This has affected both investment and
consumption in the national economy.
Apart from global concerns, Indian markets are also worried about the liquidity crunch on
the ground affecting both, investments and consumption in the country.

Market correction:
The market has been performing exceedingly well for a long time. Over the past year, both
the market indices Sensex and Nifty broke new records. Many experts were of the opinion
that a market correction was imminent. Share valuations were considered extremely pricey.
The Sensex traded at a trailing P/E of 25.07 times. In comparison, the average P/E for the
past five years was 19.81, according to media reports.

The single biggest reason of the ongoing volatility and fall is the global
coronavirus pandemic. In India, the number of coronavirus cases stand at a shade
below 1,000 (as on March 28) even as the country is in the midst of a 21-day
lockdown as part of the government’s attempts to curb the spread. The pandemic
has led to concerns that global economic growth will get deeply affected. The
International Monetary Fund (IMF) has already said that the world has entered a
recession that is as bad or worse as 2008 when the global financial crisis
happened. In India, investor concerns have led to foreign portfolio investors (FPIs)
selling equities worth nearly ₹60,000 crore in the current month, the highest ever
single month sales by overseas investors.

What is the reason for the huge plunge?

The single biggest reason of the ongoing volatility and fall is the global coronavirus pandemic. In
India, the number of coronavirus cases stand at a shade below 1,000 (as on March 28) even as
the country is in the midst of a 21-day lockdown as part of the government’s attempts to curb the
spread. The pandemic has led to concerns that global economic growth will get deeply affected.
The International Monetary Fund (IMF) has already said that the world has entered a recession
that is as bad or worse as 2008 when the global financial crisis happened. In India, investor
concerns have led to foreign portfolio investors (FPIs) selling equities worth nearly ₹60,000 crore
in the current month, the highest ever single month sales by overseas investors.

Is selling happening across all sectors?

An across-the-board selling frenzy has gripped the markets with no sector insulated from the sell-
off. Banking and financials, however, have borne the brunt as investors believe that the economic
impact of the pandemic will lead to a rise in bad debts of such entities. Sector heavyweights such
as HDFC, ICICI Bank, Axis Bank, State Bank of India, IndusInd Bank and Bajaj Finance, all part of
the Sensex, have fallen significantly with some currently trading near multi-year lows.
Automobile stocks have also been among the worst hit as most plants are shut on account of the
lockdown. Some of the pharmaceutical and fast moving consumer goods (FMCG) stocks have
been able to stem the fall to a limited extent though they are currently significantly lower
compared to their highs.
Is anything being done to address investor concerns?

Globally, governments and regulators are taking initiatives in the form of stimulus measures to
support the economy. For instance, the U.S. Senate and House have approved a $2-trillion
coronavirus relief package. Earlier, the U.S. Federal Reserve announced a $700-billion stimulus
package. In India, the Reserve Bank of India (RBI) reduced the key interest rate sharply by 75
basis points and allowed equated monthly instalments (EMIs) to be deferred by three months.
The repo rate has been reduced by 75 bps while the reverse repo rate has been cut by 90 bps.
Further, the cash reserve ratio has also been reduced that will release ₹1.37-lakh crore liquidity.
Cumulatively, the RBI measures will lead to an infusion of ₹3.74-lakh crore into the banking
system. The Securities and Exchange Board of India (SEBI), on its part, has relaxed many
compliance requirements while tightening the norms for short selling and margins to ensure the
smooth functioning of the equity markets.

What is the outlook?

The consensus estimate is pessimistic due to the lack of any positive triggers. While policy makers
worldwide are trying to provide stimulus, the uncertainty around the pandemic has made
investors risk averse. They feel that since the current crisis is not due to a liquidity crunch, as was
the case during the Lehman crisis, it is difficult to counter it with mere liquidity infusion. Most
analysts expect the pandemic to affect corporate earnings over the next few quarters. Global
financial major Morgan Stanley has lowered its year-end Sensex target by a little over 11% to
32,000, from the earlier 36,000, even as it believes that the current bear phase in the stock
market is close to its bottom. Analysts are unanimous in their view that the pandemic will hit
India’s growth rate and hence risky assets like equities are seeing a sell-off from investors across
categories.