Coronavirus effect: Sensex logs second-biggest fall ever; time to buy, sell or hold?

Benchmark indices Sensex and Nifty which were going strong despite weak GDP growth since the beginning of this year have fallen victim to the coronavirus outbreak across the world. Sensex closed 1,448 points lower at 38,297 and Nifty lost 431 points to 11,201 today. This was the second-biggest fall for the Sensex ever (in terms of points) in a single day. Highest fall ever was recorded when Sensex plunged 1,624 points to close at 25,741 on August 24, 2015.

While Sensex has clocked 7.17% fall since the beginning of this year, Nifty has fallen 7.94% during the period. On the contrary, things were very rosy five months ago. Analysts and brokerages were busy predicting new highs for Indian indices despite falling economic growth.

Sensex, Nifty crash: Investors lose Rs 11 lakh crore in a week amid fears of coronavirus

In September end last year, Morgan Stanley raised the target for benchmark Sensex to 45,000 by June 2020 after government cut corporate tax rate to nearly 25% from 35% earlier. Other analysts and brokerages too became hugely bullish on Indian market revising targets for Sensex and Nifty upward.

All was going well as per the predictions till January 20 when indices hit their all-time highs defying a  weak economy.  While Sensex hit its all-time high of 42,273 , Nifty touched its all-time high of 12,430 on January 20. Since then, the market has been falling steadily on Budget shock and coronavirus fears.  On February 1, Sensex fell nearly 1,000 points intra day and closed 988 points lower at 39,735. 

Nifty ended 392 points lower at 11,664 after the government did not fulfill the longstanding demand for reviewing long-term capital gain (LTCG) tax and added optional income tax slabs (without deductions) in the Budget, leading to fall in stocks of insurance firms among others.

Selling in global and Indian markets has intensified since February 19 after coronavirus cases spread fast across the globe threatening to derail global growth. Sensex which stood at 41,323 on February 19 has lost 3,026 points to 38,297 today in just six sessions.

Sensex, Nifty crash: Rs 5 lakh crore investor wealth wiped off in minutes

Nifty too has lost 924 points till date from its February 19 level of 12,125 after hitting intra day low of 11,175 today. Sensex, which hit its all-time high on January 20, is now clocking negative returns since the beginning of this year. The index has lost 7.17% during the period against 2.47% gain it clocked till January 20.  

The index hit its intra day low of 38,219 today, down 4,054 points compared to its all-time high.

Similarly, Nifty has fallen 7.94% or 967 points since the beginning of this year. The index hit its all-time high of 12,430 on January 20. It fell to 11,175 intra day clocking 10% decline from its all-time high. The index had gained 2.15% since the beginning of this year till January 20.  

Here's a look at what analysts said on how to play the market from current level.

Sanjeev Zarbade, VP PCG Research at Kotak Securities said, "The BSE-30 Index declined 6.5% in the current week. Global markets fell even more with Dow Jones and Nasdaq falling 11%, one of the sharpest cuts in several years. Markets feared the rapid outbreak of COVID-19 across the geographies and the consequent economic fallout. ONGC, Reliance Industries and Maruti Suzuki were among the top losers in on Sensex, while State Bank of India was one of the few stocks that held its ground. Today, the third quarter GDP data is scheduled to be announced. FPIs sold equities worth US$635 mn over the past five trading sessions while DIIs bought US$132 mn worth of equities in the same period."

Vikas Jain, senior research analyst at Reliance Securities said, "The Nifty has seen a sharp decline along with the global markets sell-off in equities for the last 6 days. Key critical support levels of 11320 for the Nifty 50 index, the 100 week average being broken down has further put pressure across sectors and stocks. Going ahead Nifty should find support near 10,950 levels, its 34 month average."

Shibani Sircar Kurian, Sr. Vice President and Head of Equity Research, Kotak Mahindra Asset Management Company (KMAMC) said,"Global markets felt the impact of the spread of the coronavirus and the Indian markets were not immune to the trend. Markets the world over, are grappling with the uncertainty of the impact of this epidemic on growth and global demand. The expiry of the futures & options (F&O) contracts for the February series on Thursday, too added volatility in the domestic market. From here on, domestic equity markets will focus on Q3FY20 GDP growth data release, impact of disruption in supply chain for Indian companies, any further spread of coronavirus outside the epicenter and the reaction of policy makers around the world."

Santosh Meena, Senior Analyst at TradingBells said, "Equity markets are falling sharply as fear of recession is rising where investors are looking for safe-haven instruments like Yen, US bonds and Gold. It is still difficult to predict the extent and impact of Coronavirus but the equity markets are in a critical condition and they are looking for some positive triggers on the front of Coronavirus for any kind of respite. Technically, 11,200-11,100 is a sacrosanct support area for the Nifty and there is a good chance that Nifty may stabilise here and bounce back towards 11700 level."

Rusmik Oza, senior VP (Head of Fundamental Research-PCG) at Kotak Securities said, "As coronavirus is spreading across countries, the fear factor in markets is going up. Till the time the coronavirus was contained in Mainland China, there was compliancy in global equity markets but now as more cases are getting reported in various countries, the impact is sharper. The fall in Nifty-50 got accentuated after it broke the 200 DMA placed at 11,685 and since then it is following the developed markets.

During past instances like coronavirus, markets fell gradually and recovered gradually. This time the fall has been vertical and that too in a matter of few days. Going by past precedents, the recovery in markets (post containment of such epidemics) is equal or higher than the fall. As the fall has been too-fast-too-soon, markets have gone into oversold zone (i.e. RSI of Nifty-50 has gone to 25 level). Since the risk-reward ratio has turned favourable for the market, it is ideal to accumulate stocks keeping in mind the downside of 11,000 for Nifty-50."