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    China virus takes toll across markets

    Synopsis

    The rising concerns saw the price of safe-haven assets such as gold rising.

    ET Bureau
    Mumbai: India’s benchmark indices slumped by more than 1 per cent on Monday as markets tumbled across the world amid growing nervousness over the economic impact of the coronavirus outbreak in China that appears to be intensifying.

    The local stock market fell as prices of crude oil — a key commodity import for India — fell by more than 3 per cent on fears that the spread of the virus will impact demand. The rising concerns saw the price of safe-haven assets such as gold rising.

    The Sensex slid 1.1 per cent to end at 41,155.12 points. The Nifty also lost 1.1 per cent to close at 12,119 points. Tata Steel, IndusInd Bank, HDFC Bank, State Bank of India and Power Grid fell 2-4 per cent. The local fear index VIX climbed 10 per cent to end above the 17 level for the first time since October last year. All sector indices on the NSE ended down barring the Nifty Pharma index, which climbed 1.5 per cent.

    Japan's Nikkei dropped 2 per cent. The FTSE in London, the DAX in Frankfurt and the CAC 40 in Paris all fell more than 2 per cent. The Dow Jones Industrial Average was down more than 1 per cent at press time.
    corona-grapppp

    “There is concern about the coronavirus and what it means for global economy in the context of a potential slowdown in China, which is a big part of the global economy,” said Sanjeev Prasad, co-head, Kotak Institutional Equities. “No one knows whether this is the beginning or the end of the issue. It is hard to say and markets are being cautious.”

    About 3,000 people are reported to have contracted the disease, which has killed 80 people, mostly in China. Wuhan, the centre of the outbreak, is under lockdown as authorities and health workers battle to control it.

    “Markets had ignored the potential significance of coronavirus until the last couple of days, when a classic ‘flight to safety’ has emerged,” Robin Brooks, chief economist at the Institute of International Finance, said in a tweet. “The Japanese yen is rallying on a global ‘riskoff,’ while EM & commodity exporters (the latter proxy for global growth) are weakening.”

    This is the second big global risk that has weighed on markets recently after US-Iran tensions spiked earlier this month after Iranian general Qassem Soleimani was killed in a US airstrike. Moreover, investors are questioning whether the second phase of negotiations on the US-China trade deal would fructify anytime soon.

    Back home, investors are watching out for the Union budget on Saturday. Lower-than-expected earnings from select index members have also led to concern in the local markets with investors questioning expensive premiums commanded by these companies. India's Sensex has fallen in six out of the last 10 trading sessions and has retreated 2.6 per cent from its all-time high of 42,273.87, reached on January 20. The Nifty has come off 2.5 per cent from its all-time high of 12,430.50 hit on the same day.

    “If the government announces relief measures on taxation like LTCG (long-term capital gains), dividend distribution tax etc., the market will take it positively,” Prasad said. “There is not much scope for a big stimulus given the fiscal situation.”

    An ET poll of 26 fund managers and heads of research at brokerages published on December 24 showed that 83 per cent expect the government to widen the fiscal deficit target from 3.3 per cent of GDP that it had budgeted for in July last year. About 50 per cent believed that a 50 basis-point slippage is on the cards while 30 per cent expected it will be eased by 30 basis points. A basis point is 0.01 percentage point.

    Morgan Stanley expects the fiscal deficit to shrink to 3.5 per cent of GDP in FY21 from 3.7 per cent in FY20. Weak trends in tax revenue and divestments will likely cause slippage even as expenditure will be rationalised in FY20, said Morgan Stanley.

    “Factors that will likely have maximum impact include the government spending plan on infrastructure and farmers, a credible fiscal deficit target, and realignment of direct taxes (including long-term capital gains tax for all classes of investors) and scale of privatization,” said Morgan Stanley.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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