Global markets dancing to the tune of coronavirus outbreak

Panicking over the reports that the novel coronavirus spread widely to the United States and Europe, and labelling of Covid-19 as a pandemic by the World Health Organization (WHO), stock markets across the globe witnessed the wildest 'black week' since the 2008 financial crisis during the week ended.

With the spread of the new coronavirus rippling through industries and the launching of an oil price war, major indices across the globe fell from record highs just three weeks ago in one of the worst weeks in the stock market's history. Benchmark indices posted their biggest ever weekly fall.

On Friday, with indices hitting circuit breaker for the first time in 12 years after 2008 crisis, trading on the indices was halted for forty-five minutes. The BSE Sensex closed at 34,103.48 with a loss of 3,473.14 points and the Nifty plunged 1,034.25 points to 9,955.20.

The BSE small-cap and mid-cap indices have also tumbled 11.77 percent and 11.17 percent. Following global selloff in equities, foreign institutional investors (FIIs) remained net sellers for last 14 sessions to the tune of Rs 41,702.97 crore.

However, DIIs were net buyers to the tune of Rs 43,675 crore. The measures are being put into place as the US and world economies look increasingly likely to slip into recession with expanding swaths of commerce being shut down amid the pandemic.

Central banks around the world were trying to salve the market by flooding it with cheap money, to little effect.

Near term trend will be dictated by the flow of news on coronavirus, FII and DII activity, the movement of rupee against the dollar, crude oil price movement and global cues. Charts have gone for a toss during the week ended.

Indices witnessed a dramatic movement of ups and downs in this week and closed the week lower by over nine per cent, as per w-o-w basis. For the week ahead, chartists predict trading range of 32,000-35,800 and 9,000-10,800 for the Sensex and the Nifty respectively. The short-term trend of Nifty seems to have reversed up from swing low of 8,555.

Punters expect further upmove in the coming week and the near-term upside target to be watched is 10,550-650 in the next couple of weeks. Cracks formed in the plumbing that moves money through the financial system. Present crisis is the first major test of Wall Street's mettle since

FUTURES & OPTIONS

Indices hitting their lower circuit for the first time after 2008 due to concerns on account of coronavirus reflected the 'pain and panic' in the markets. With margin selling aggravating the selling pressure in the derivatives segment many stocks fell like a pack of cards.

On the derivatives front, it could be observed that distant OTM strikes like 10000, 9500, 9000 and 8500 in Put options were traded heavily at the start of the week ended. Sharp observers link this pattern of trading with Algorithm traders who can swing the indices as they wish by basket.

The Implied Volatility (IV) of Calls closed at 47.73 per cent, while that for Put options closed at 52.50 per cent. The Nifty VIX for the week closed at 51.47 per cent and is expected to remain volatile. PCR open interest for the week closed at 1.06.

Expect huge volatility and sharp swings to continue in coming sessions as well; and on any bounce towards 10,450 to 10,600 in the Nifty exit from weak counters. Monthly charts signal that Nifty has important long-term support at around 9,300-9,200 levels.

Big tech companies were good defensive buys in uncertain times. Now, they have suffered along with the rest of the market, though some names are holding up better than others. Rupee weakness is plus for the sector.

Buy TCS, Infosys and HCL Tech. The government has approved the Reserve Bank of India (RBI) reconstruction scheme for Yes Bank. Markets are likely to stay volatile for next few weeks and may stabilize only after global coronavirus infection rates show signs of peaking and decline. One of the biggest lessons from the last financial crisis is that it didn't pay to sell in a panic when markets tanked.

In times like present global volatility, retail investors should keep calm and not panic. Savvy old timers advise investors sitting on cash to start accumulating 10-15 percent of overall allocation on a gradual basis.

(The author is a stock market expert. He is former vice chairman of AP Planning Board)