China's Covid curbs spook global markets; Sensex, Nifty tumble over 1%

India’s benchmark indices declined on Monday, along with global peers, as fresh lockdowns in China and the prospect of aggressive interest rate hikes by the US Federal Reserve stoked concerns about global growth outlook, pushing investors to safe havens. Most global markets extended Friday’s losses, which were triggered by hawkish signals from the Fed.

The Sensex fell 617 points, or 1.08 per cent, to end at 56,580, while the Nifty50 index closed below the 17,000 mark, at 16,954, after losing 218 points, or 1.27 per cent. The two indices dropped more than 1 per cent for the second straight session on Monday. The broader market underperformed, with the Nifty Smallcap 100 and the Nifty Midcap 100 indices sliding 2.42 per cent and 1.92 per cent, respectively. The India VIX index soared 16 per cent to 21.26.

Most European markets fell over 2 per cent, while the US indices opened lower as fears over China's Covid-19 outbreaks spooked investors already concerned about aggressive interest rate hikes. The Dow Jones Industrial Average and the S&P 500 were down about 1 per cent in early trade. China’s CSI 300 index plunged nearly 5 per cent amid the worsening Covid situation in the country.

“China is the world’s second-largest economy and has shown no signs that it intends to live with the virus…All of that points to lower growth and it is no surprise that the offshore yuan is getting punished, Asia forex is weaker, and Asian equities are taking fright at a US rate hike, slow China growth pincer move. Probably the only bright spot, ex-China, is that oil prices are being beaten down as well,” said Jeffrey Halley, senior market analyst, Asia Pacific, Oanda.
 

Brent crude oil prices dropped close to 5 per cent due to demand concerns following news that lockdowns were spreading to Beijing.

Foreign portfolio investors (FPIs) sold shares worth Rs 3,303 crore on Monday. So far this month, overseas investors have pulled out nearly $2 billion from domestic stocks.

“FPIs are pricing in steep interest rate hikes by the Fed. That's why they are getting out. Unless there is a strong revival in sentiment either through FPI buying or some government action, the downward pressure on the market will continue,” said U R Bhat, co-founder, Alphaniti Fintech.

Last week, Federal Reserve Chair Jerome Powell had hinted that a 50-basis point interest rate hike in May and another 50 bps increase in June were on the cards to tame the hottest inflation in four decades. Following the comments, the 5-year US Treasury had topped 3 per cent.

Experts said the proposed rate hikes by the Fed might induce a lot of volatility in the equity market and would lead to repricing of assets.

The market breadth on Monday was negative with 980 stocks advancing and 2,558 declining on the BSE. Only eight of the Nifty 50 components and seven of the Sensex 30 components ended with gains. Reliance Industries fell 2.3 per cent and was the biggest drag on the market. In absolute terms, Tata Steel fell the most at 4.5 per cent. All the 19 sectoral indices of the BSE ended with losses barring the banking index, which ended unchanged. The BSE Metal index fell the most at 3.7 per cent.