China sneezes, Indian markets catch a cold | Stock Market News

Fresh virus fears rode on other weak signals to send the markets tumbling on Monday, wiping out ₹11 trillion of investor wealth in a day. Benchmarks BSE Sensex and NSE Nifty crashed more than 1.5% each, and fear gauge Vix rose the most in four months.

News of two cases of the Chinese-origin human metapneumovirus (HMPV) being detected early Monday in India added a new negative to the markets already impacted by low corporate earnings and economic growth sentiment, and a local currency that continued its slide against the dollar.

Lacklustre quarterly updates by banks over the weekend—signalling slower credit growth—hit sentiment further. Banking behemoth HDFC Bank reported credit growth of 3% on-year in its quarterly update for the third quarter of FY25, which disappointed markets.

Consequently, selling by foreign investors and fresh shorting of derivatives dragged the Nifty and Sensex down. The Nifty slid below the psychological 24,000 mark, tanking 1.62% to 23,616.05, and the Sensex fell 1.59% to close at 77,964.99.

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Monday’s fall dragged the two benchmarks below their 200-day exponential moving averages (EMAs) of 23,700 and 78,056. A fall below the EMA is a sign of weakness.

Meanwhile the India Vix surged 15.58% to 15.65, signalling increasing uncertainty, and the rupee shed 5 paise to close at a fresh low of 85.83 to the dollar.

Significantly, Indian markets were the worst hit on Monday among emerging markets.

“The decline was much more in India than in other markets, which makes the outbreak of the virus a negative on top of other negatives, like tepid quarterly updates by banks signalling lower loan growth, falling rupee, and economic growth concerns,” said Andrew Holland, chief executive officer of Avendus Capital Public Markets Alternate Strategies.

Indeed, Japan’s Nikkei 225 was the only other major index to fall, closing lower by 1.47%. Taiwan’s Taiex ended up 2.79%, South Korea’s Kospi settled 1.9% higher, and China’s Shanghai Composite ended down just 0.14%.

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“Valuations are expensive, so any negative news tends to increase the downside risks to Indian markets,” Sanjeev Prasad, managing director and co-head at Kotak Institutional Equities, said about the impact of the new virus.

Agreed Jyoti Jaipuria, founder of portfolio manager Valentis Advisors. “India is the most expensive among EMs (emerging markets), so any new fear adds to the risk especially if earnings don’t justify the valuations,” he said.

To be sure, India’s Nifty trades at a high price-to-earnings multiple of 22.4 times on a 12-month trailing basis. Comparatively, Taiex trades at 21.5 times, Shanghai Composite trades at 15.6 times, and Kospi at 11.61 times.

The fine print

Broader benchmarks Nifty Midcap 150 and Nifty Smallcap 250 fell 2.5% and 2.88%, respectively, implying nervousness by retail investors, who flock to small and midcaps. These indices fell below their recent lows of 31 December, signalling a market making lower lows, which is a negative sign.

Foreign institutional investors (FIIs) sold shares worth a provisional ₹2,575.06 crore. While domestic institutions absorbed this selling with net purchases of a provisional ₹5,749.65 crore, shorting of derivatives and retail selling, data for both of which were not available until press time, offset this.

For instance, Nifty options’ aggregate put-call ratio declined to 0.72 from 0.86 on Friday, per analytics company IndiaCharts. This implies traders are selling just 72 puts for every 100 calls being sold, a bearish indicator. A trader sells relatively more calls when he thinks the market would not rise and, thus, allow him to pocket the price paid by call buyers.

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Looking ahead, with markets having slipped below key moving averages, analysts expect the weakness to persist and Indian indices to continue to underperform other emerging markets.

Valentis Advisors’ Jaipuria expects the markets to remain volatile amid the earnings season kicking off this week, and US president-elect Donald Trump taking office on 20 January.