YES Bank crisis, Coronavirus fears spell double trouble for markets

The domestic market slumped on Friday after the crisis at YES Bank triggered a sharp sell-off in financial stocks. Investor sentiment was further dampened by the continued rout in world markets as coronavirus cases neared 100,000, stoking fresh fears of a global recession. The Sensex dropped 894 points, or 2.32 per cent, to end at 37,577 — the lowest close since October 7.

The Nifty50 index plunged 280 points, or 2.5 per cent, to close at 10,989, breaching key support levels. Both the indices are now down 11 per cent from their all-time highs, recorded in mid-January.

The rupee fell nearly 0.63 per cent to end at 73.78 against the US dollar — the lowest level for the domestic currency since October 2018. The rupee almost touched the 74 level in intra-day trade.

Shares of YES Bank crashed 56 per cent a day after the Reserve Bank of India (RBI) placed the lender under a moratorium

and superseded its board. Market players feared the crisis at the bank would spill over into the economy.

“The RBI’s move to curtail withdrawals was unexpected. Everyone was aware that there is some problem, but no one expected curbs in fund withdrawals, which led to unnecessary speculation how the situation would evolve,” said Jyotivardhan Jaipuria, founder of Valentis Advisors.

Most Asian markets fell more than 2 per cent on Friday. European markets, too, opened sharply lower as coronavirus weighed on various sectors of the economy. US stocks were volatile on Friday, as jittery investors took cover in perceived safe havens such as bonds and gold. The Dow Jones Industrial Average was down about 500 points to 25,622 as of 12:15 am (IST).

Globally, the number of cases neared 100,000 and the death toll surpassed 3,200. The economic toll has prompted many central banks to cut interest rates.

However, experts raised doubts over the effectiveness of the move.

The 10-year US Treasury dropped to a new low of 0.7 per cent, signalling extreme risk aversion. “Investors are concerned that there is a demand problem globally.

There is a tendency during such situations to sit on cash. If you are not earning revenue, any amount of interest rate cut will not help,” said Andrew Holland, CEO of Avendus Capital Alternate Strategies. Overseas investors sold shares worth Rs 3,594 crore. In the last 15 trading sessions, they have dumped shares worth nearly Rs 20,000 crore. Domestic institutional investors bought shares worth Rs 2,543 crore.

The BSE Bankex fell 3.5 per cent. Shares of SBI dropped 6.2 per cent. IndusInd Bank and ICICI Bank fell by 5.6 per cent and 3.7 per cent, respectively. Axis Bank fell by 2.9 per cent and HDFC Bank by 1.5 per cent. Apart from banking stocks, metal and energy stocks declined the most, with their sectoral indices dropping 4.4 per cent and 3.2 per cent, respectively. Tata Steel, HDFC, and ONGC were the worst-performing Sensex stocks. On an overall basis, 1,919 stocks declined, and 527 advanced on the BSE.