IMPACT OF COVID CRISIS ON STOCK EXCHANGE

INTRODUCTION

STOCK EXCHANGE:-   A stock exchange is an place where stockbrokers and traders can buy and sell securities such as shares of stocks, bonds ,and other financial instruments.                                         

COVID 19:- Coronavirus disease (COVID-19) is an infectious disease caused by a newly discovered coronavirus.  Coronavirus disease 2019 (COVID-19) is a contagious disease caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2).

SOURCE : INTERNET (SECONDARY )

Most common symptoms:

fever

dry cough

tiredness

 

Keywords :- Covid 19 , stock exchange , lockdown, crises

The outburst of COVID-19 has affected the entire global financial market in an unprecedented way. Due to the disturbance that appear in the global market; the financial market of India also retaliated to the pandemic and witnessed keen fluctuations. With help of indices such as Nifty and Sensex, it studies the volatility of these indices over the period 3rd September 2019 to 10th July 2020. Further, the study has attempted to make a comparative analysis of the return of the stock market in pre-COVID-19 and during the COVID19 situation. GARCH model is used to show the volatility of the indices. This  reveal that the stock market in India has experienced volatility during the pandemic period. While contrasting the results with that of the pre-COVID-19 period, we find that yield on the indices is higher in the pre-COVID-19 period than during COVID-19. The return of both the stock market touched the bottom line during the first lockdown period, which is from24th March to 6th April.

 

 

The rapid spread of the unprecedented COVID- 19 pandemic has put the world in danger and changed the global exposure  unexpectedly. Initially, the SARS-CoV-2 virus, which caused the COVID-19 outbreak triggered in Wuhan city, Hubei province of China in December 2019, and with time it spread all over the globe. This pandemic is not only a global health emergency but is 2 a significant global economic downturn too. As many countries adopt strict quarantine policies to fight with covid19, their economic activities are close down. Transports being restricted among countries have declined global economic activities. Uncertainty and risk created due to this covid 19, causing crucial economic impact all over the globe impacting both advanced and emerging economies such as the US, Spain, Italy, Brazil, and India.  The financial market has responded with dramatic movement and adversely affected during pandemic. The global financial market risk has expanded substantially in response to the covid  .Investors are suffering sufficient losses due to fear and uncertainty. For example, due to the impact of this pandemic, the global stock market has struck out about US$6 trillion in one week from 24th to 28th Feb. The market value of Standard & Poor (S&P) 500 indexes declined to 30% since the Covid-19 outbreak. Increased uncertainty affects the required rate of return and thus current market value of stocks. The outbreak of the COVID-19 pandemic makes this picture more captious . The government of India announced Janata Curfew on 22nd March 2020 and lockdown policy to maintain social distancing practice to reduce the affect the of pandemic from 24th March 2020. As the government announced such a lockdown policy, various economic activities have been obviated. The financial market of India is witnessed keen volatility as a result of the disruption 4 of the global mark. As a result of fall out in the global financial market, the Indian stock market also witnesses sharp volatility.  There are two major stock indices in India- Bombay Stock Exchange (BSE), Sensex, and National Stock Exchange (NSE), Nifty. If we look at the Bombay Stock Exchange there is a drop in the Sensex index to 13.2% on 23rd March 2020. It was the highest single they fall after the news of the Harshad Mehta Scam, 28th April 1991. Similarly Nifty has also declined to almost 29% during this period.  The impact of COVID-19 on the Indian stock market have considered as a ‘Black-Swan Event’ i.e. the occurrence of a highly unanticipated event with an extremely bad impact. Due to the lockdown policy adopted by the government, the factories have limited the size of their labour force as well as production level which discarded the supply chain. Again because of the uncertainty prevailing among mankind, people also reduce their consumption habits . Studies have also found that the entire previous pandemic had affected only the demand chain. But this COVID-19 pandemic has affected both the demand chain and supply chain. Despite the severe impact of COVID-19 on the stock market of the entire economy, there is limited study on it especially in the case of an emerging economy. To shed light on this aspect, this paper attempts to investigate the impact of COVID-19 on the two important stock market of India. GJR GARCH model is used to make the study more significant in terms of volatility in stock index prices due to the outburst of the covid crisis and lockdown policy adopted by the Indian government. Major findings of the study reveal the volatile nature of BSE Sensex and NSE Nifty, the two prominent stock market of India.

 

OUTCOME OF  COVID -19 ON STOCK EXCHANGE    

1. Effect of the Lockdown Due to Covid-19 

As an immediate effect of the lockdown, economists cut GDP prices for the expected future. Depending on the market, segments like consumer retail projected to see sharp falls ranging from 3 to 23 percent. This meant running at less than maximum capacity to hold afloat for the major players throughout segments.  Overall, pandemic dramatically changed modern habits.

 

2. The Effect on Global Markets

Economists expect the growth rate in China to slowdown up to 4 percent in the first quarter of 2020 from 6 percent in the previous quarter. Fear about the effect of the pandemic on the global economy has harmed the optimism of investors and driven down equity prices in major markets .

 Although the 2019 rally was limited to large-cap stocks like HDFC Bank, HDFC, TCS, Infosys, Reliance, Hindustan Unilever and ICICI Bank, etc. The market had witnessed a great start at the beginning of the calendar year both NSE and BSE traded at their highest levels ever, hitting peaks of 12,400 and 42,273 respectively.

 

3. Corona and Stock Market Volatility                                             

India's stock market is experiencing a major increase in its volatility, as shown by the VIX index rising by about three times its usual pace, with markets halted twice in March 2020 due to lower circuit filter

NSE derivative market volume data shows a massive fall (20 percent) in the average number of daily derivative contracts traded in March 2020 compared to the previous months.

The COVID-19 had pushed the Indian benchmark index to a level that was witnessed during the Global Financial Crisis of 2008. The index had plunged more than 30 percent from their recent high in January. Deferred payments, stagnant loan growth, growing cases of bad loans, and weak market conditions have hindered economic activity growth and health.

 

4. Boosting the Liquidity in the System                                            

The RBI has announced the second tranche of liquidity measures to boost the liquidity into the system. In the case of liquidity measure, the RBI has majorly focused on two instruments. As of April 15, the banks are having a surplus of Rs. 6.9 Lakh Crs under the reverse repo window and RBI has decided to inject this amount into the public by reducing the reverse repo rate 25 basis points or 0.25 % which come down to 3.75 percent from 4 percent earlier and maintaining the repo rate at 4.4 percent .

The RBI stated that a special refinance facility worth of Rs 50,000 Crs will be provided to the financial intuitions like NABARD, SIDBI, and NHB to boost the liquidity in those sectors .

 

 

CONCLUSION :-

An attempt to analyze the effect of COVID-19 on the performance of BSE and NSE; the two stock markets of India-. GJH GARCH model is utilized to evaluate the volatility in the stock market by comparing the two time periods, pre and post 1st positive COVID-19 cases in India. These two periods are taken as the dependent variable and per day closing price of BSE and NSE indices are considered as the independent variable. This shows that the BSE Sensex become volatile during the pandemic period. The mean return in pre-COVID-19 and during the COVID-19 period is calculated separately. This revealed that with negative mean returns, the stock market faces losses during the pandemic, whereas return is shown positive in the pre-COVID-19 phase. In the pre-COVID-19 period, the price was high but during the pandemic period it reveals a declining trend up to the 1st lockdown period i.e. to the end of March but after this, it again takes an upward movement gradually. It is on account of the relaxation added to the lockdown policy by the Indian government. The unprecedented pandemic has already brought 19 challenges to almost all countries. In brief, it conclude that the Coronavirus outbreak has affected the stock price and increased the volatility in the Indian stock markets, and affect the financial system.

                                                                                                                                           

Author Name:

Himanshi Chugh

(Assistant Professor, Management Department)