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Sensex sinks by 1,448.37 points, rupee hits a six-month low against the dollar

Global markets went into a tailspin on Friday as investors stampeded out of stocks and commodities and flocked to the relative safety of government bonds, prompted by fears of a global recession due to the spread of the coronavirus.

After Wall Street experienced its worst rout since 2011 on Thursday, when the Dow Jones Industrial Average plunged by 1,190.95 points — its largest single-day drop in history — global markets took their cue on Friday. Indices across the world, beginning with Tokyo’s Nikkei, Seoul’s Kospi and European indices such as the FTSE 100 in London and Frankfurt’s DAX, were all bathed in red as investors rushed to dump shares.

Uncertain impact

Markets were spooked by the uncertain impact of the virus on global economic health.

The BSE Sensex sank by 1,448.37 points, or 3.64%, to close at 38,297.29. This is its sixth straight session of loss, and the index is now 3,976 points lower than its high of 42,273.87 points registered on January 20 this year.

Reflecting the turmoil in the stock markets, the rupee hit a six-month low against the dollar, at ₹72.27, before recovering marginally to close at ₹72.21.

U.S. markets appeared set to experience their worst week since the 2008 global financial crisis. The broad-based S&P 500 index was down 4% in early trade on Friday and is now down almost 15% since its all-time high set just six trading sessions back. It was down by 1.7% at 11 p.m. Indian time.

Yields on U.S. Treasury bills fell sharply as investors embraced its relative safety over stocks. The bond markets displayed an inverted yield curve where short-term bills yield more than long-term ones, signifying nervousness over economic prospects.

Yields on the 10-year Treasury bills fell to 1.17%, even as that on the 3-month bill remained at 1.43%. General economic wisdom holds that an inverted yield curve is the harbinger of a recession.

Oil prices experienced their worst week since 2016, with the prices of the benchmark Brent crude falling to as low as $50.51 a barrel. Elsewhere in the commodity markets, metal prices fell by up to 6%.

Global borrowings benchmark Libor experienced its worst single-day drop in a decade, falling to 1.46275%, as the markets raised their bets on accelerated rate cuts in the U.S. as a response to the economic turmoil.

Slump in manufacturing drags down momentum

India’s third-quarter growth decelerated to 4.7%, the slowest pace in about seven years, as a slump in manufacturing weighed on overall economic momentum.

The Centre, however, asserted that the slowdown had bottomed out, with Economic Affairs Secretary Atanu Chakraborty citing a recent uptick in core sector output.

On Friday, the National Statistical Office (NSO) released data showing that the Gross Domestic Product expanded by 4.7% in the quarter ended in December 2019, compared with 5.6% in the year-earlier period.

“We have already bottomed out,” Mr. Chakraborty told journalists after the data was released. “Sustained improvement in agriculture and services continue to drive growth. The turnaround in growth in the eight core sector industries index in December 2019 and January 2020 also augurs well for the manufacturing sector,” he added. These core industries showed a growth of 2.2% in January, according to data released by the Commerce Ministry on Friday.

Asked about the possible fallout that the coronavirus outbreak in China, which now threatens to affect an increasing number of countries, could have on India’s economy, he said it was an “unfolding story” and refused to speculate on the likely impact.

The NSO also released the second advance estimates, projecting a GDP growth of 5% for 2019-20, in comparison with 6.1% in 2018-19. The projection remains unchanged from last month.

However, the NSO revised upward its GDP growth estimates for the first two quarters of the current fiscal year: growth in the first quarter of 2019-20 was pegged at 5.6%, higher than its earlier estimate of 5%. For the second quarter too, it increased the estimate to 5.1%, from 4.5%.

According to senior Finance Ministry officials, the government’s increased spending, especially on infrastructure, had helped spur a modest economic recovery. They also saw positive signs in foreign direct investment, mining and agriculture, and claimed an improvement in demand in rural areas.

The impact from last year’s corporate tax rate cut on investments could not be judged at this point, said a senior official, terming it a “long-term, generational, structural” change that could take years to pay off. Officials also admitted that the sharp downward revision of 2018-19 GDP growth estimates, from 6.8% to 6.1%, could cause some distortion in this year’s growth estimates.

Above normal heat wave conditions likely in some areas

Rising mercury: The forecast indicates that the March-May season is likely to be hotter. file photo

The summer months from March to May are poised to be hotter than normal, a forecast by the India Meteorological Department (IMD) said on Friday.

The forecast indicates that the MAM (March-May) season averaged temperatures are likely to be at least half a degree hotter than normal over northwest, west and central India and some parts of south India.

The season averaged maximum temperature is likely to be warmer than normal in Himachal Pradesh, Uttarakhand, West Rajasthan and Arunachal Pradesh.

It is likely to be warmer than normal by over 0.5C to <1C over Jammu and Kashmir, Haryana, Chandigarh and Delhi, west Uttar Pradesh, east Rajasthan, east and west Madhya Pradesh, Chhattisgarh, Odisha, sub Himalayan West Bengal, Gujarat, Saurashtra and Kutch, Konkan and Goa, central Maharashtra, Marathawada, Vidharbha, north interior Karnataka, coastal Karnataka, Rayalaseema and Kerala.

Above normal heat wave conditions are also likely in the core heat wave zone during the season (March-May), the weather department said.

Key to timely monsoon

The core heat wave zone covers the States of Punjab, Himachal Pradesh, Delhi, Uttarakhand, Haryana, Rajasthan, Uttar Pradesh, Gujarat, Madhya Pradesh, Bihar, Chhattisgarh, Jharkhand, West Bengal, Odisha and Telangana and parts of Maharashtra and coastal Andhra Pradesh.

A hot summer, experts say, is a key factor to a timely monsoon. However, the impact of a warming ocean and its impact on the monsoon is likely to be more apparent around April when the IMD issues its first forecast for the monsoon.

The southwest monsoon in 2019 (June to September) delivered rainfall 10% above average in the country — the highest in 25 years. In 1994, the rainfall was 110% during the June-September period.

Before that, over 10 % above average rainfall was witnessed in 1990 (119%).

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