Bull run turns into a bear chase: Market drops second straight day

Benchmark indices fell for the second day on Friday, but ended the week with 2.5-per cent gain. Global investor sentiment was hit by hawkish comments by the European Central Bank (ECB), disappointing earnings from US technology giants, and simmering crisis at Ukraine border.

The Sensex fell 143 points, or 0.24 per cent, to end at 58,645. The index gained 1,444 points, or 2.5 per cent, during the week after the capital expenditure push announced in the Union Budget 2022-23 drove optimism of revival in economic growth and corporate earnings. The Nifty50 Index fell 44 points, or 0.25 per cent, to finish at 17,516.3.

In the preceding two weeks, domestic markets had crashed 7 per cent spooked by the US Federal Reserve’s (Fed's) decision to start raising interest rates to cool down inflation.

On Thursday, the ECB joined the Fed in taking a hawkish turn as its President Christine Lagarde no longer ruled out an interest-rate hike this year.

Meanwhile, Bank of England (BoE) on Thursday raised interest rates successively for the first time since 2004 as it began the process of quantitative tightening.

Domestic markets started this week on a strong note, but gave up some gains amid these headwinds.

Earlier this week, Finance Minister Nirmala Sitharaman announced plans to increase capital spending by 35 per cent to Rs 7.5 trillion in the next fiscal year, seeking to bolster the economy’s recovery after disruptions from the Covid-19 pandemic.

“Domestic indices had a bull run during the first half of the week as the Budget was in line with market expectation. As global cues turned in favour of bears, the domestic market turned volatile towards the end of the week. US markets were under pressure, following weak earnings numbers reported by Meta Platforms, Inc. The European market also lacked strength as BoE imposed back-to-back rate hikes, while a more dovish ECB acknowledged the risk of rising inflation, signalling a rate hike in the near future,” said Vinod Nair, head of research, Geojit Financial Services.

“In the coming week, Reserve Bank of India's (RBI’s) policy meeting will be the major event awaited by domestic investors. The RBI may begin its policy tapering with an increase in the reverse repo rate, keeping repo rates unchanged," he added.

Overseas investors sold shares worth Rs 2,268 crore, while domestic institutions were net-buyers to the tune of Rs 622 crore.

“The market is witnessing higher volatility, but the sentiment has improved after the Budget. Now the focus will shift to a rising interest-rate regime globally and consequent higher bond yields. The surge in oil price to a seven-year high of $92 per barrel will present further challenge to inflation. The December quarter earnings has been good so far as companies largely delivered on the earnings front, despite unprecedented inflationary pressures from rising commodity and energy prices. The corporate earnings delivery is highly crucial in a rising rate regime, which is getting well reflected in the market with poor performers getting battered severely,” said Siddhartha Khemka, head-retail research, Motilal Oswal Financial Services.

According to the Bloomberg data, of the 33 Nifty50 companies that have announced results so far, 18 either met or exceeded analyst estimates, 13 missed, and two can’t be compared. 

With inputs from Bloomberg