Markets extend selloff as Covid-19 surges; investors flee risky assets

Indian fell sharply for a second day as increasing Covid-19 cases hit investor sentiment and raised doubts over the pace of economic recovery.

The benchmark Sensex ended the session at 48,440, with a decline of 740 points or 1.5 per cent, while the Nifty closed at 14,325, with a fall of 224 points or 1.5 per cent. The two indices are now back at levels before the Union Budget on February 1. From their peak on February 15, the blue chip company-focused indices are down 7 per cent.

On Thursday, foreign investors pulled out Rs 3,384 crore from domestic stocks. A day earlier, they had sold shares worth nearly Rs 2,000 crore.

Over Rs 10 trillion of investor wealth has been wiped out in March, as rising US bond yields and Covid-19 infections triggered a flight to safety among investors.

India’s rising infections and a third Covid-19 wave in parts of Europe are forcing investors to flee risky assets.

India was the worst-performing major market on Thursday. Most other were up or down marginally following an upbeat assessment for the US economy given Treasury Secretary Janet Yellen and Fed Chair Jerome Powell.

ALSO READ: Investor wealth erodes by over Rs 7 trn in two days of market crash

Market players attributed technical factors for Thursday’s fall, such as the expiry of the March series derivatives contracts. Prospects of fresh curbs to contain the spread of the disease hurt domestic stocks too.

India on Wednesday had more than 50,000 cases for the first time. More than two-thirds came from Maharashtra, India’s most industrialised and financially influential states. A new “double mutant” variant of the has also been detected in India. Analysts said that the second wave of Covid-19 could impact the nascent economic recovery. Many states have declared localised lockdowns to contain the spread. And the government has announced that people above the age of 45 will be vaccinated from next month.

“The correction in is largely due to the increase in Covid infections. The numbers are galloping almost uncontrollably, at least in two or three states. The one positive is that we now have effective vaccines, and if quickly administered with wide coverage, we can avoid the pitfalls of the first wave last year. With the experience of the last one year, medical professionals are more proficient in dealing with this situation, and fatalities have come down after the vaccination programme,’ said UR Bhat, Director, Dalton Capital India.

Globally, many countries like France, Germany, Poland and Ukraine have re-imposed lockdowns.

“The market may remain under pressure in the near term amidst weak global cues and fast-spreading second wave of Covid in India, which could impact the pace of economic recovery. High commodity prices, too, is a concern, and till it cools off substantially, the fear of inflation would continue to loom. Given the likelihood of high volatility continuing in the market for some time, investors would do well by staying calm and gradually accumulating good quality companies on declines in the market,’ said Siddhartha Khemka, Head – Retail Research, Motilal Oswal Financial Services.

Analysts said a fall in infection rate through more onerous restrictions and pace in vaccination might quickly stabilise the markets.

From here on, the economic impact of a potential lockdown and its effect on the apparent V-shaped recovery are the questions markets are trying to grapple with, analysts said.

“And if there is a continued outflow from FPIs, the Rupee will come under pressure. Interest rates and the COVID situation are the two important factors that will decide the trajectory of the markets,” said Bhat.

The market breadth was strongly in favours of declines for a second day. A total of 2,189 fell on the BSE, while only 760 advanced. All Sensex constituents except four declined. Maruti Suzuki fell the most at 4 per cent. Hindustan Unilever fell 3.4 per cent, and Bharti Airtel fell 3 per cent. Telecom and Power stocks fell the most, and their gauges fell 3 per cent and 2.8 per cent, respectively.

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