BSE
BSE
(PTI Photo/Kunal Patil)

Equity investors ended one of the most volatile weeks in the history of India's stock market with fragile hope that the worst may be over as benchmark indices registered their biggest one-day jump in six months.

The Nifty 50 and the BSE Sensex clocked around 4% gains after recovering close to 19% from their day's low as investors reacted to reports that the global healthcare community may be close to producing a vaccine for coronavirus, which has wreaked havoc on the global economy.

"Today's close is a sugar high for the market," said a Singapore-based fund manager, who invests in emerging markets and manages $1.8 bln in assets.

Fund managers suggested the gains in global markets, too, were unlikely to sustain as the threat to the global economy from the outbreak of coronavirus has not dissipated, and is only likely to worsen in the coming weeks.

Sceptics in the market also pointed to the 60 bln rupees of net sales by foreign institutional investors in domestic equities today despite a surge in the benchmark indices.

India will become a relatively attractive bet for foreign investors only if other emerging markets fare worse, but clarity on that will only emerge over the next few weeks, the fund manager said.

Goldman Sachs' broking arm, in a call to clients today, warned that over the coming six to eight weeks, investors will witness a global health and economic collapse. It projected growth in global GDP in 2020 to be the slowest in over three decades.

Earlier in the day, panic-stricken investors liquidated their holdings at a frantic pace, causing the Nifty 50 and the Sensex to plummet 10% within minutes of opening, triggering a market-wide halt for the first time since October 2012.

Coronavirus has caused a severe shock to the global consumer economy, as governments move to shut schools, colleges, theatres, large public gatherings and inter-country travel to contain the spread of the virus.

Maharashtra, which contributes nearly a sixth to India's GDP, today announced closure of schools, colleges, theatres and mass gathering in five major cities, including the financial epicentre of the country, Mumbai.

Similar action has been taken by states such as Kerala, Karnataka and Delhi and money managers believe more will follow as the number of cases in the country spike. In India, the number of people affected by the virus has jumped to over 80 from three less than two weeks ago.

The inability of investors to gauge the damage the virus will cause to the global and domestic economy led the Nifty 50 and Sensex to test their lowest levels in three years within 39 sessions of hitting lifetime highs in January.

Both the headline indices lost over 9% of their value this week, the worst weekly performance in over a decade.

Optimists, though, point to measures taken by central banks to limit the damage caused by the virus on the global economy. The US Federal Reserve on Thursday announced $1.5 trln of repo operations to boost liquidity in the market. This was after cutting interest rates by 50 basis points last week.

The European Central Bank said it was willing to provide liquidity to banks as long as needed, while the Chinese central bank has further cut the reserve requirement rate to boost lending.

The RBI will conduct a $2-bln foreign exchange swap auction on Tuesday to inject liquidity into the currency market, and likely helped the rupee bounce off its record low of 74.50 to a US dollar.

However, as Christopher Woods of Jefferies suggested in a note recently, monetary policy is likely to be helpless in dealing with this humanitarian and economic crisis.

The turn for equity markets from pessimism to optimism is still some way off, said a domestic fund manager.

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