MUMBAI – Indian markets fell sharply by over 3% on Monday, as more states have joined the worst-affected state of Maharashtra in entering quasi-lockdown possibly hitting consumer demand and overall economic revival. Possibility of complete lockdown in Maharashtra due to rise in covid cases made investors jittery with markets seeing sharpest single day decline since 26 February.
The BSE Sensex lost 1707.94 points or 3.44% ending at 47,883.38 while the Nifty slipped 524.05 points or 3.53% at 14,310.80.
According to Binod Modi, Head Strategy, Reliance Securities, concerns of possible reversal in economic momentum and earnings recovery made investors risk-averse and huge sell-off led ₹9 lakh crore of wealth erosion today. “Domestic equities today reminded the bloodbath of March 2020 as record rise in covid-19 cases in the country and possibility of lockdowns in several states dented investors’ sentiments. Additionally, recent weakness in Indian rupee may also aggravate investors’ concerns. However, softening of global bond yields and crude prices offered some comforts,” he said.
Markets have lost around 8% from record highs touched in February while foreign institutional investors (FIIs) have turned net sellers of Indian equities first time in seven months. FIIs which were supporting the markets with ample liquidity, were net sellers of $186.01 million worth Indian equities in April. However, domestic institutional investors (DIIs) were net buyers of shares worth ₹1090.59 crore in the month.
“FII sentiment for the near term will be muted as the markets are still trading above its five year average, however the discount has narrowed as the Nifty is down almost 7-8% from its highs. Near term there will be weakness, however Q4 earnings along with management commentary, which we expect to be positive, should support downside until we see some easing in the rate of increase in covid cases,” said Amit Shah, Head of India Equity Research, BNP Paribas.
Meanwhile, the India Volatility Index or VIX rose the most in over a month, ending 16.2% higher at 22.99. The higher VIX indicates that investors are expecting a correction in markets soon.
The Indian rupee weakened past 75-mark to hit a nine-month low on Monday against the US dollar on continued selling pressure from foreign investors in local equities and bond markets.
Six states – Maharashtra, Karnataka, Punjab, Chhattisgarh, Madhya Pradesh and Gujarat – taken together accounted for 66% of new cases in the 5-11 April week. “The traffic congestion index for major cities in some of the hardest-hit states – Mumbai (Maharashtra), Bengaluru (Karnataka), and Ahmedabad (Gujarat) – has nosedived in the past few weeks, and is winding back towards levels seen during the nationwide lockdown last April,” said Crisil in a report on 12 April.
Analysts warn that the second wave may result in weaker demand in the quarter due to lockdowns.