Bears tighten grip: Market sell-off deepens on global recession fears

Sensex drops to lowest level since July; FPIs sell shares worth Rs 4,900 cr

India’s benchmark indices tumbled over 2.6 per cent on Thursday amid a heavy sell-off in global equities as overseas investors continued to dump domestic stocks due to fears of a global recession.

The latest selling pressure came after US retailers such as Walmart posted disappointing earnings, triggering the worst fall on Wall Street in nearly two years. Investors feared that soaring inflation would erode corporate profit margins, and steps to curb inflation by the US Federal Reserve would lead to a recession.

The Sensex plunged 1,416 points, or 2.6 per cent, to end at 52,792 -- the lowest close since July 30, 2021. The Nifty50 index, on the other hand, closed at 15,809, dropping 431 points, or 2.7 per cent -- the biggest single-day fall since February 24. Last week, the Nifty had breached the 2022 closing low made on March 7.

Foreign portfolio investors (FPIs) sold shares worth Rs 4,900 crore, taking their monthly selling tally past Rs 36,000 crore. The sharp pullback from FPIs has led to a rout in the domestic market, with the Nifty dropping nearly 8 per cent this month and the broader market mid- and small-cap indices seeing an even deeper cut. 

“The growth momentum in the global economy is slowing down due to liquidity tightening by central banks. The Russia-Ukraine conflict is also not showing any signs of easing with newer categories of weapons introduced in the conflict, which will keep energy and food prices high. Both these variables point to a stagflation kind of scenario globally, which can lead to discretionary spending going down. This is fuelling greater volatility in global equity markets, including in India. We expect markets to remain volatile in the near term,” said Naveen Kulkarni, chief investment officer, Axis Securities.

The Nifty has come off over 14 per cent from its record high of 18,477 in October 2021. Despite the sharp fall, its valuations remain above historical levels.

“The Nifty index is currently trading at a 12-month forward price-to-earnings ratio of 17.5 times, marginally above the pre-Covid five-year average of 16.9 times. A further 3-5 per cent correction in valuation will potentially make risk-reward favourable for India as fundamentals such as corporate leverage and return on equities are much better than pre-Covid levels,” said Jitendra Gohil, head, India equity research, Credit Suisse Wealth Management.

All but three Nifty components fell on Thursday. IT and metal stocks led the losses. HCL Technologies, Wipro, Infosys, and Tech Mahindra declined more than 5 per cent each. JSW Steel, Hindalco, and Tata Steel declined over 4 per cent each. ITC rose over 3 per cent.

Earlier this week, Bofa Securities cut its Nifty target from 17,000 to 16,000, implying a flattish performance for the remainder of the year. The brokerage said concerns such as the front-loading of interest rate hikes in the US, high domestic inflation, and the recent off-cycle rate hike by the RBI would weigh on the market performance. Bofa said any easing in global oil prices, reversal in FPI outflows, and bottoming of the rupee would be positive for the market. Key downside risks include a higher global Inflation print, resulting in faster-than-anticipated rate hikes.

“In this negative scenario, we see the Nifty’s valuation multiple shrinking to its long-term average of 15.8 times, resulting in an index at 13,700,” said Bofa strategist Amish Shah in a note.