India’s benchmark indices tumbled over 2.6 per cent on Thursday amid a heavy sell-off in global equities as overseas investors continued to dump domestic stocks due to fears of a global recession.
The latest selling pressure came after US retailers such as Walmart posted disappointing earnings, triggering the worst fall on Wall Street in nearly two years. Investors feared that soaring inflation would erode corporate profit margins, and steps to curb inflation by the US Federal Reserve would lead to a recession.
The Sensex plunged 1,416 points, or 2.6 per cent, to end at 52,792 — the lowest close since July 30, 2021. The Nifty50 index, on the other hand, closed at 15,809, dropping 431 points, or 2.7 per cent — the biggest single -day fall since February 24. Last week, the Nifty had breached the 2022 closing low made on March 7.
Foreign portfolio investors (FPIs) sold shares worth Rs 4,900 crore, taking their monthly selling tally past Rs 36,000 crore. The sharp pullback from FPIs has led to a route in the domestic market, with the Nifty
“The growth momentum in the global economy is slowing down due to liquidity tightening by central banks. The Russia-Ukraine conflict is also not showing any signs of easing with newer categories of weapons introduced in the conflict, which will keep energy and food prices high. Both these variables point to a stagflation kind of scenario globally, which can lead to discretionary spending going down. This is fueling greater volatility in global equity markets, including in India. We expect markets
The Nifty has come off over 14 per cent from its record high of 18,477 in October 2021. Despite the sharp fall, its valuations remain above historical levels.
“The Nifty index is currently trading at a 12-month forward price-to-earnings ratio of 17.5 times, marginally above the pre-Covid five-year average of 16.9 times. A further 3-5 per cent correction in valuation will potentially make risk-reward favorable for India as fundamentals such as corporate leverage and return on equities are much better than pre-Covid levels,” said Jitendra Gohil, head, India equity research, Credit Suisse Wealth Management.
All but three Nifty components fell on Thursday. IT and metal stocks led the losses. HCL Technologies, Wipro, Infosys, and Tech Mahindra declined more than 5 per cent each. JSW Steel, Hindalco, and Tata Steel declined over 4 per cent each. ITC rose over 3 per cent.
Earlier this week, Bofa Securities cut its Nifty target from 17,000 to 16,000, implying a flattish performance for the remainder of the year. The brokerage said concerns such as the front-loading of interest rate hikes in the US, high domestic inflation, and the recent off-cycle rate hike by the RBI would weigh on the market performance. Bofa said any easing in global oil prices, reversal in FPI outflows, and bottoming of the rupee would be positive for the market. Key downside risks include a higher global inflation print, resulting in faster-than-anticipated rate hikes.
“In this negative scenario, we see the Nifty’s valuation multiple shrinking to its long-term average of 15.8 times, resulting in an index at 13,700,” said Bofa strategist Amish Shah in a note.
Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.
As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practice the journalism to which we are committed.
Support quality journalism and subscribe to Business Standard,