Foreign investors are dumping Indian stocks every day as if there is no future
Jolted by coronavirus spreading across the world, equity markets in India have fallen like a house of cards. The Sensex and the Nifty have lost over 35 per cent of value in the last one month — from 40363 on February 24 to 25981 on March 23 which translates to an average loss of nearly 500 points a day. A faster-than-expected rise in coronavirus cases and a lockdown in 80 districts in the country pushed the markets to go into a tailspin on Monday. The Sensex has witnessed its worst day in history on Monday by recording the steepest ever fall in terms of both absolute number and percentage — beating the 12.7 per cent fall caused by the Harshad Mehta scam in April 1992 in percentage terms.
Unless India stops the spread of Covid-19, a greater human tragedy awaits us even if the mortality remains 3 percent. At this stage, a complete lockdown appears to be the only way forward, which implies the stoppage of production and lower profits in the next few quarters. As an investor hates uncertainty, foreign investors are dumping Indian stocks every day as if there is no future. Since March 1, foreign portfolio investors have withdrawn nearly Rs 1,09,000 crore from Indian equity and debt markets.
If state-run financial institutions had not intervened, the crash would have been worse. And no one knows when the market would hit the bottom. An average 35 per cent fall in stock prices (and more in the days ahead) could trigger margin calls for promoters who raised money by pledging their shares as collateral. Unless the promoters arrange the margin money, the pledged shares would be offloaded in the market triggering yet another crisis. It is, therefore, high time that the government suspends equity markets until some sense prevails. Foreign investors who want to exit should be allowed to strike deals through off-market transactions.