Sensex, Nifty crash amid global rate hike fears — Second straight session of losses

Sensex, Nifty crash amid global rate hike fears — Second straight session of losses

Indian equities lost ground for the second straight session on Monday, anxious that global growth would slow sharply amid continued tightening by central banks. The Street also expects more hikes in local interest rates with inflation remaining uncomfortably high.

The benchmark indices – Nifty 50 and BSE Sensex – lost over 1%, dragged lower by metals and banks, as weak global cues weighed on the sentiment. The NSE Nifty 50 index closed down 688 points or 1.51% to close at 17,490.7, while the S&P BSE Sensex gave up 1.46% or 872 points to end the session at 58,773.87. Barring ITC and Nestle India, all Sensex components posted losses. 

The two straight sessions of losses wiped out investors’ wealth worth over `6.57 trillion.Strategists at HSBC wrote late last week that the Indian equity market has seen a turnaround, with easing inflationary pressure and a lower risk of steeper US rate hikes. “We see many factors coming together, creating a Goldilocks-like scenario for continued support of the bull run in India. We prefer to position for a continued risk-on rally through a mix of domestic cyclical and growth stocks,” they said.

However, the weakness in the Chinese economy, driven by the troubles in its real estate market, appears to have led to apprehensions that the slowdown could spill over to other economies as well. Also, the recent rally has meant the markets are now a shade more expensive with the Nifty trading at over 21 times estimated one-year forward earnings. As such there were bouts of profit-taking following the rally earlier in August, analysts pointed out. Till August 18, the Nifty had rallied by 4.6%, while the Sensex had put on 4.7%. 

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Foreign institutional investors pumped $5.6 billion into Indian equities till August 19, compared with inflows of $618 million in July, data showed. Also, emerging market (EM) funds have increased their allocation to India to 19.7% versus 18.1% in June while trimming the allocation to Chines, analysts at Bank of America wrote.

There was also some concern on corporate earnings for the April-June quarter, which were muted, primarily due to pressure on gross margins amid ongoing geopolitical conflicts and improving supply chain dynamics.

“The topline growth at the Nifty level (ex-financials) was at 3.3% quarter-on-quarter,” analysts at ICICI Securities said, adding that operating profits, however, were down 7.2% quarter-on-quarter.