Stocks continued to fall for the fifth consecutive day on Monday, with the benchmark BSE Sensex and NSE Nifty 50 crashing more than 2.6 per cent, tracking a global market rout as investors brace for a two-day policy meeting of US Federal Reserve beginning on Tuesday, which should give a clear direction on interest rate hikes coming later this year.
Foreign investors have been pulling out of equities in India as well as other emerging markets, as the Fed and other major global central banks have begun reversing their easy money policies, that they had unleashed when the Covid-19 pandemic hit two years ago. Even as Covid-19 cases have surged in recent months, a record rise in inflation has forced the Fed to quicken its pace of tapering and is expected to hike interest rates this year for the first time since 2018.
So far, in January, foreign portfolio investors have pulled out Rs 11,866 crore from India’s equity markets, which is driving stocks lower.
On Monday, the Sensex closed down 1,546 points at 57,491.51 levels. The wider NSE Nifty 50 slumped 468 points to end at 17,149.10 level.
“The drop in the market is mainly due to ongoing fears about a potential rate hike in the near-term by the Federal Reserve,” said Mitul Shah, head of research at Reliance Securities.
Investment bank Goldman Sachs said over the weekend that due to the sharp rise in inflation, the Fed could get more aggressive this year than what economists have been expecting. Goldman Sachs is already expecting the Fed to raise interest rates in March, June, September and December this year.
A more hawkish and aggressive Fed could put more pressure on emerging market equities. On Monday, the Hong Kong’s Hang Seng, Thailand’s SET Composite Index and Jakarta Composite Index in Indonesia closed more than 1 per cent lower.
Major European markets like the FTSE 100 in London, France’s CAC40 and Germany’s DAX were down more than 1 per cent. Earlier on Friday, the Dow Jones Industrial Average and the S&P500 index in the US too had ended sharply lower.
Back home, the stocks of recently listed tech startups bore the maximum brunt of the blood-bath on the markets. Shares of food delivery app Zomato slumped 20 per cent, FSN Ecommerce (Nykaa) was down 13 per cent, Cartrade Tech fell 5.5 per cent and One 97 Communications, the parent of fintech giant Paytm, was down 4.4 per cent.
Other tech stocks also saw a huge sell-off tracking a similar hammering of global tech giants earlier on Friday. While Tata Consultancy Services fell 1.7 per cent, Infosys was down 2.7 per cent, HCL Tech declined 3.8 per cent and Wipro, Tech Mahindra fell over 5 per cent.
All the components in the 30-share Sensex closed in the red, with index heavyweight Reliance down 4 per cent.
There was a sharper sell-off in smaller stocks; the BSE midcap index shed 3.8 per cent and the BSE smallcap index tumbled 4.4 per cent.
“Risk sentiment took a blow ahead of the FOMC (Federal Open Markets Committee) meeting starting tomorrow. Investors are keenly awaiting the result of the two-day Fed meeting where the US central bank is expected to provide more guidance on its rate hike plans. While all sectors hit rough weather, stocks of the new age tech companies were the most affected due to drop in growth of profitability amid expensive valuations,” said Vinod Nair, head of research at Geojit Financial Services.
All eyes will be on the Fed meet now this week and then the Union Budget next week.
Analysts say post the decline in benchmark stock indices since the high hit in October 2021, valuations were now much healthier, although a further decline could well be possible.
“While a further 500 points downside cannot be ruled out in the Nifty, on the brighter side, the stock market is much lighter and healthier, heading into the Union Budget, after the high in mid-October 2021,” said Amar Ambani, head of institutional equities at Yes Securities.
