NEW DELHI: A steep fall in domestic stocks eroded investor wealth by nearly Rs 4 lakh crore in Monday’s trade.
Investors fear that data showing strong hiring in the US could give the US Fed a shot in arm in tackling inflation aggressively, pushing the dollar higher and sending the rupee to an all-time low.
Foreign outflows could just intensify for a growth market like India, which enjoys premium valuations, investors feared. Within the first 30 minutes into trading, the combined market capitalisation of all listed stocks on BSE fell by Rs 3.74 lakh crore to Rs 251.14 lakh crore from Rs 255.17 lakh crore.
The BSE Sensex slipped below the 54,000 mark briefly while the Nifty50 also tested 16,150 before seeing some recovery.
Here are key factors that led the market fall:
Strong US jobs data
Data released on Friday showed nonfarm payrolls rose by 428,000 jobs in April. Economists polled by Reuters had forecast payrolls would rise by 3,91,000 jobs. Estimates had ranged from a low of 1,88,000 to a high of 5,17,000. A rise in jobs data underscored the US economy’s strong fundamentals despite a shrinking of GDP in the first quarter. This has raised fears that the US Fed may keep rate hikes aggressive until inflation is controlled in the world’s largest economy.
Rupee at record low
The strong US jobs data and prospects of aggressive Fed rate hikes sent dollar rising against emerging market currencies and the rupee was no exception. The rupee depreciated to hit a low of 77.1325 against the dollar in early trade. With this, the domestic currency breached the previous record low of 76.98 hit on March 7. The US dollar index, which measures the dollar against a basket of six major currencies, last traded at 103.98 against 103.79 in the previous day.
FPI outflows
A weakening rupee and rich valuations in India do not bode well as far as foreign flows are concerned. Data showed foreign portfolio investors have already pulled out Rs 6,417 crore worth equities this month and about Rs 1,33,579 crore in 2022 so far. A weak rupee eats into FPI equity returns. Rich valuations are not helping either. “Even after the correction, Nifty50 is trading at around 19 times FY23 earnings. This is higher than the long-term average of 16 times and certainly not a buyable valuation, particularly when equity markets globally are facing many headwinds like risk of growth slowdown, Ukraine war and supply chain disruptions caused by stringent lockdown in China,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
US futures, Asian markets
S&P500 June futures fell 42.25 points or 1.03 per cent to 4,077.25, hinting at weak start to US markets later in the day. US stocks had closed lower on Friday and Thursday as well. The poor sentiment also weighed heavy on Asian markets, which open before domestic bourses. Markets across Asia were down up to 2.5 per cent. Japanese Nikkei index was down 2.3 per cent. Taiwan and Korea markets fell up to 1.7 per cent. Australian shares were down 1.8 per cent. Mainland China and Hong Kong markets were closed for the day on account of public holidays.
Technical weakness
Nifty50 had on Friday witnessed an indecisive Doji candle on the daily chart. On the weekly charts, it was the fourth week when the index formed a bearish candle, emphasising the bear domination in the market. The index was trading below its key moving averages. Analysts felt the pain in the market was unlikely to ease in the near future. “Honestly speaking, we did not expect the fall to extend below 16,500 but when global uncertainty comes, no level is respected. If we take a glance at the daily time frame chart, we can see ‘Pennant’ pattern target in the vicinity of 16,200-16,000, which is not far away from current level. Hence, we would rather wait for some reversal this week,” said Sameet Chavan of Angel One.
