Indian markets posted on Wednesday their biggest single-day fall in nearly a month, reacting to rising coronavirus cases casting a shadow over economic recovery. Lockdowns in parts of Europe and the possibility tax rates increasing in the US put investors off risky assets.
Foreign investors pulled out nearly Rs 2,000 crore from domestic equities on Wednesday.
The Nifty ended at 14,549, with a decline of 265 points or 1.8 per cent. The Sensex ended at 49,180, falling 871 points or 1.7 per cent. Wednesday’s fall in percentage terms was the most since February 26 when the indices had crashed nearly 4 per cent amid rising US bond yields. Also, the closing levels for the Sensex and the Nifty were lowest in nearly a month.
India’s health ministry said that it had found a new Covid-19 variant and said rising cases in states and union territories was worrying. India recorded 47,262 new cases in the last 24 hours and reported 275 deaths, the highest in 2021 on Tuesday.
Investors feared that the rise in COVID cases and restrictions in India could hurt the pace of economic recovery and delay reemployment of millions who lost their jobs during the pandemic.
India is also marking one year of a nationwide lockdown, which left millions of workers stranded and unemployed. This time, most Covid-19 cases are from Maharashtra, one of the most industrialised states in the country and whose capital Mumbai is India’s financial capital.
“Sharp rise in new Covid-19 in Maharashtra, which contributes over 13 per cent of India’s GDP and about 20 per cent of the country’s industrial output, is certainly a matter of concern. However, given the experience of 2020, the spread can be controlled without putting a large scale of business restrictions by the administrations. Additionally, a faster rollout of the vaccination process can be helpful to contain the spread of the virus,” said. Binod Modi, Head Strategy at Reliance Securities.
Indian markets are now down nearly six per cent from their record highs hit in mid-February.
Analysts said the economic outlook will be tied to the spread of the virus. If Covid-19 cases continue to rise, it will cost the economy, and the impact on growth will be felt in the April to June quarter, they warn.
Global markets also traded weak on Wednesday as sentiments were dampened after Germany, France, and Italy widened virus-related curbs amid rise in infections.
“Markets have had a great run and have not seen a 10-percent plus correction since May. So markets were looking for an excuse to correct. Markets are concerned that there could be lockdowns. Though we are going through the second wave of infections, it is much more muted, and secondly, vaccination is happening, we will not get a major lockdown. It will be good for markets if they consolidate. A bit of price and time correction will make the markets a little cheaper and healthier,” Jyotivardhan Jaipuria, Founder, Valentis Advisors.
On Tuesday, the World Health Organization head called recent increases in deaths and cases as truly worrying trends. Oil prices fell as the lockdown measures in Europe brought in uncertainties regarding the recovery in consumption.
The 10-year US bond yields also fell after Federal Reserve Chairman Jerome Powell reassured that inflation rise over the year would be “neither particularly large nor persistent”.
The market was negative, with 2,115 stocks declining against 842 stocks advancing. Barring two, all Sensex stocks fell. M&M was the worst-performing stock and ended the session with a decline of 4 per cent. SBI, Axis Bank and ICICI Bank each fell more than 3 per cent, while index heavyweight Reliance Industries declined 2 per cent.