It was a gory month for economies across the world and stock markets bore the brunt of it. They headed for a tailspin from the word go since the first news of the deadly pandemic broke into the scene. Benchmark BSE Sensex has had a steep dive of 13.2% on 23rd March, 2020, which was the biggest single day fall ever surpassing the infamous fall of 28th April, 1992 after the news of Harshad Mehta Scam. Nifty was no different when it declined almost 29% in the last three months of the FY20, overtaking the disaster of 1992. The severity was such that only one tenth of the Nifty stocks saw a surge while rest has bitten the dust. Covid-19 related necessity called ‘social distancing’ has made sure that factories and workplaces are shut across the world. As a result of that production has virtually come to standstill. The lack of movement of people has also curtailed the demand barring the items needed to survive. Other than the daily to use items, the public spending has decreased on most of the items. As a result of that only FMCG companies saw their stock surging whereas rest saw a steep decline. Top three gainers of Nifty in FY20 has been Nestle India, Bharti Airtel and HUL. As it can be seen, two out of these three are into FMCG. On the other hand, the most prominent sector among the losers are banking. In the last three months, Nifty bank index lost more than 40 percent of their market value where one third of the banking stocks related to the index nosedived more than 50 percent. The reasons are not difficult to visualize. Most of the medium scale and few of the large scale businesses has come to a standstill gradually for the past three months leading to the lockdown of 21 days presently. As a result of that, new loan growth has shrunk and loan repayments have also declined eroding the value of the assets. On top of that, a three months moratorium period on loanrepayments is offered by many banks as suggested by RBI. This has further dampened the growth prospects of banks. Most importantly, as people are not able to move out of their house or able to move out only cautiously, the propensity to hoard more cash has increased. This has not only put a halt to new deposit growths, it has also eroded the present deposits as more ATM withdrawal happened. In the meantime, the payment commitments by the banks have not reduced making it unsustainable for them to do business with ease. The asset erosion in the form of decline in quality of receivables and demand as well as time deposits, coupled with a burden of liability has created an asset-liability mismatch. The YES Bank fiasco at the same time has only aggravated the sorry outlook of the banking sector. Though government has bailed YES Bank out of the fiasco, few other banks have been asked to share the burden of it further damaging the financials of those banks including SBI. All these factors have made banking sector lose value consistently over the last three months. Among the other sectors, pharma may see a surge in near future if any covid-19 related medicine come in forefront. Overall, it may be a good time to invest as the unprecedented global economic meltdown due to the pandemic made sure that stocks are hitting the lowest it could after many years. Just like the purification in nature has taken place around the world, the grossly overvalued Indian stock market too probably needed the much needed correction.
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