Indian indices cracked on Monday as investors worry over the impact of economic growth of the second wave of COVID. A continuous rise in new cases has fuelled fears of harsher restrictions and more economic pain.

Share Market Live

NSE

Broad-based selling led to a 2.5 percent drop in Sensex and Nifty earlier in trade as the country struggled to contain an unrelenting surge in coronavirus infections.

India on Monday reported its tenth record daily increase in COVID-19 cases which rose over 2.5 lakh with the capital city of New Delhi announcing a lockdown from midnight of April 19 till April 26 morning.

The state of Maharashtra is already under a lockdown since April 15 and other states including Rajasthan, Tamil Nadu is also following the trend.

The Sensex crashed 900 points while the Nifty lost shed as much as 2 percent. Banking and financials stocks dragged the most and only pharma stocks were in the green.

The Volatility index India VIX, meanwhile, was also trading 10.5 percent higher at 22.5 indicating investors are worried about the alarming rise in coronavirus cases in the country.

"The steady rise in test positivity cases and the steady decline in recovery rates are areas of serious concern. But, this negativity need not reflect fully in the market since the global clues are positive. The decline in US 10-year yield from the recent high of 1.75 percent to 1.56 percent presently is a major relief & support to markets," said Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Meanwhile, BNP Paribas told CNBC-TV18 that India is not a buy for some time.

"We don't see a buying opportunity for the next one quarter. There are concerns about further lockdowns and the market will have to grapple with uncertainty at the moment. Buying now would feel like catching a falling knife," BNP Paribas said. It expects India to underperform Asian peers in the near term.

Here are the key factors behind today's selloff:

COVID cases

Another record single-day spike in fresh COVID cased spooked investors on Dalal Street, as stricter restrictions by most states to curb the spread of the virus led to economic concerns. In the last 24 hours, India recorded 2,73,810 new 19 cases, taking the total infections over 1.5 crores since the start of the pandemic.

GDP downgrades

The market sentiment was also lower after a number of brokerages and research houses also downgraded India's GDP forecasts following the resurgence in COVID cases, which pose a risk to India's economic recovery.

Nomura downgraded economic growth estimates for FY22 to 12.6 percent from 13.5 percent earlier while JPMorgan cut its GDP growth forecast to 11 percent from 13 percent earlier. UBS, meanwhile, sees FY22 GDP growth at 10 percent from 11.5 percent earlier.

The RBI has projected FY22 GDP growth at 10.5 percent, while IMF puts it at 12.5 percent. The World Bank sees 2021-22 growth at 10.1 percent.

"The health crisis India is going through and localised lockdowns and restrictions on economic activity warrant a market correction. The targets of around 11 percent GDP growth and above 30 percent earnings growth for FY22 that the market had assumed pre-second wave are likely to fall short," VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services

FPI outflows

Another reason for the selloff was the FPI outflows. Foreign portfolio investors (FPIs) have pulled net Rs 4,615 crore from markets in April so far amid sharp escalation in COVID-19 cases and the consequent restrictions imposed by various states, unnerving overseas investors. According to the depositories data, overseas investors pulled out Rs 4,643 crore from equities but invested Rs 28 crore in the debt segment. Previously, FPIs invested Rs 17,304 crore in March, Rs 23,663 crore in February and Rs 14,649 crore in January. April is likely to be the first monthly where FPIs have turned sellers since September 2020.

Fall in Financials

The banking and financial sectors dragged the most in trade today on concerns over asset quality due to the pandemic-induced local lockdowns. The Nifty PSU Bank lost over 5 percent while the Nifty Bank and Nifty Fin Services sectors shed 3-4 percent. RBL Bank, AU Small Finance Bank, IDFC First Bank, Federal Bank, Bandhan Bank, PNB and IndusInd Bank lost 5-7 percent in intra-day deals weighing on the benchmarks.

Earnings growth

Another factor affecting the markets is the earnings growth for the March quarter. Investors fear that the second wave of COVID will affect the earnings for the quarter. Analysts believe any negative surprises on the earnings front can again derail the recovery.

IT companies, which kicked off the earnings seasons last week fell on bourses post earnings after IT majors TCS and Infosys missed analysts estimates. Banking heavyweight HDFC Bank has also not fared well in the markets after announcing its Q4 earnings.

First Published:Apr 19, 2021 2:05 PM IST