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The two benchmark indices have succumbed to intense selling in the last two trading sessions as global sentiment turned sour over the weekend. Since Thursday, the BSE Sensex has cracked 1,500 points and the Nifty50 has shed 503 points. In Monday’s intra-day trade, the former fell 840 points to the day’s low, while the latter slipped 283 points to 16,889.
On Friday, the frontline indices had closed up to 1.27 per cent lower snapping their two-day gaining streak after fears of steeper interest rate hikes by the US Fed made investors jittery.
“There are concerns that aggressive monetary tightening might even push the US economy into a recession in 2023. These fears are impacting risky assets. India cannot be immune to a probable global market correction. But India is relatively resilient. Monetary tightening in India would be mild compared to that of the US,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
Meanwhile, here are key factors that are weighing on equities:
US Fed Chair’s comments: Fed Chairman Jerome Powell on Thursday night (local time) said that a 50-basis points rate hike is on the cards, which could be announced as early as next month. The Federal Reserve is slated to meet on May 3-4, where it is expected to deliver a second rate hike of 2022 after the 25 basis point increase announced in March.
Powell’s comments sent global equities tumbling on Friday as treasury yields spiked sharply.
US and European markets closed sharply lower on Friday. The Dow Jones suffered its biggest one-day loss since 2020 ending 2.8 per cent down. In the derivative market today, the futures tied to the three US benchmark indices were trading up to 1 per cent lower.
Meanwhile, the 5-year US. treasury yield topped 3 per cent on Friday, climbing higher than the 30-year treasury bond during the day. This yield curve inversion further stoked fears of recession among investors.
Covid-19 resurgence in China: Tracking weak global sentiment, Asian markets also plummeted today, as markets in China, which is facing its worst Covid-19 outbreak, led the decline. The Shenzhen component tumbled 6.08 per cent, while the Shanghai composite declined 5.13 per cent.
FMCG pack drags: Shares of fast moving consumer goods (FMCG) companies sharply dropped in Monday’s trade, pulling down headline indices after Indonesia, the world’s top palm oil producer, announced export ban on palm oil from April 28, 2022. Palm oil is used in products like cooking oils, processed foods, cosmetics and biofuels, and is a major raw material for most of the consumer goods firms. Frontline stocks like Hindustan Unilever (HUL), Britannia Industries, Godrej Consumer Products, and Marico were down between 4 per cent and 6 per cent on the BSE. Read here
Q4 earnings impact: The recently commenced Q4 earnings season has been dismal so far as most large-cap companies’ have reported a slowdown in earnings amid the geo-political crisis and record high prices of commodities. The combined net sales of the 81 early bird companies in the Business Standard sample were up 15.1 per cent year-on-year in Q4FY22; this was less than the 15.9 per cent YoY jump reported in Q3FY22. Read more here
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