Coronavirus to affect foreign investors in March

India's markets  are set to witness the biggest sell off by foreign investors in a single month in March, as a 21-day nationwide lockdown to curb the spread of coronavirus raised fears of a devastating impact on an already-slowing economy.

Foreign institutional investors sold nearly $16 billion worth of equity and debt as of Monday, according to depository data, even as Prime Minister Narendra Modi’s government announced economic relief aimed at the poor and regulators relaxed compliance norms.

"The selling by foreign investors is what is causing the panic in the markets while domestic investors are net buyers," said Akhil Chaturvedi, Head of Sales at brokerage Motilal Oswal.

"But these are the same FIIs which are going to take the market up again because global economies are flush with liquidity as interest rates are falling."

Shuttered auto plants and empty hotels and airports are expected to exacerbate India’s economic woes, after lacklustre demand and a credit crunch had already pushed growth to its lowest pace in six years.

Coronavirus cases in India inched up to 1,251 on Tuesday, 32 of whom have died, according to the health ministry.

Although the government’s package addresses some of the basic issues, it "pales in comparison with the scale of the problem", analysts at Emkay Global said on Monday. The measures by the Reserve Bank of India are also expected to hurt bank margins and deposit rates even as the economic impact of the virus is expected to worsen their asset quality, according to several analysts.

That is what foreign investors fled from the most. In the two weeks ended March 15, FIIs sold a whopping $1.6 billion in financial services stocks that include banks and non-banking finance companies.